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First Edition • - - October, 1920 

Second Edition • - - May, 1921 


c. J. 


Man does not live by bread alone — but 
without a reasonable amount of food, 
clothes and shelter, his activities on this 
planet are both circumscribed in extent, 
and unduly limited in duration. 

In what is undoubtedly an attack on 
certain features of the so-called Capitalistic 
system, in this book, no attempt or desire 
to judge that system on any grounds but 
those of workability is made or implied. 
The business of an economic system is to 
deliver the right goods to the right users, 
and the private financing of public pro- 
duction is doomed because it is failing 
signally in delivering the goods. 

That is moral which works best. 

Heath End, 


October, 1920. 





Fallacy of Marxianism — Administration is not the 
organ of policy-control — Definition of individual 
freedom — Policy of industry rests with finance — 
The bank is its organ — ^Meaning of Democracy — 
The " change of heart " idea — ^The modern 
Pharisee _ _ _ _ - 1-13 


H. L. Gantt on Industrial Efficiency — ^The owner- 
ship of the product of industry — ^The basis of 
collective industry — ^The leverage of real capital 
— ^The flow theory of prices and purchasing- 
power — ^The artificial necessity for exports - 15-26 


The two divisions of Estate — ^The business of mobi- 
lising credit — Effect on prices — ^And on variety 
of production — ^Why the public does not control 
production - - . _ - 27-35 


All credit-values are communal — Credit and price- 
making are complementary and indispensable — 
Why the present economic system fails — Why 
the present control of production is anti-public 
— ^The climax approaching — The advantage of the 
dividend — Destined to succeed the wage — Cen- 
tralisation of Finance and Labour- Power — Mis- 
direction of effort — ^The precedent condition of 
Economic Democracy - - _ 37-47 




Breakdown imminent — ^The attack on ownership — 
A phantom enemy — ^Analysis of Nationalisation 
— ^A reversion to the Middle Ages — ^The Two 
Great Policies — ^The lesson of Russia — ^A financial 
problem of centralised credit - - - 49-57 


The two aspects of credit — Both based on psychology 
— ^The administrative basis and the machine- 
gun — ^The nemesis of Fabianism - - 59-65 


The Capital Levy — ^What it means — ^Who would pay 
it — ^The immunity of the price-maker - 67-74 


National Guilds — ^Their genesis — ^Their corruption 
by Fabian thought — ^The use and abuse of Com- 
mittees — ^The prerogatives of policy — ^The dimin- 
ishing importance of " Labour " — Its lost oppor- 
tunity — ^The site of the final struggle - - 75-86 


Summary of analysis of the Machine Age — ^Trust 
Capitalism essentially anti-public — And anti- 
democratic — ^The nature of the coming State 87-95 


The production of Real Credit — ^Delusive account- 
ing — The limits of Financial Credit -issue — 
Present economic system based on currency — 
Coming system will be based on Real Credit — 
The fraudulent standard — Delivery is part of 
credit-basis — ^The fallacy of " National Poverty " 
— Increased effective demand necessary • 97-109 





Fitness the qualification for executive authority — 
The producers not the owners of the product — 
Solar energy the great producer — ^The method 
of policy-control — The Producers* Bank — Its 
operation — ^The consumer-interest in it — ^The 
community-component of credit — How it would 
operate in the coal industry — The "Idle 
Rich" ----- 111-126 


The measurement of Credit-production — ^What is 
"capitalisation"? — The growth of wealth — 
True Price — ^The sources of statistics - 127-134 


Finance as a creator of things — ^The producer-credit 
school — ^A form of Syndicalism — ^The tyranny of 
" work " again — Analysis of producer-credit — 
Certain rise of prices — ^And failure — Consumer- 
control the only way to free producer-initiative — 
The world-conspiracy — ^The end - 135-146 


A Practical Scheme for the Establishment of 
Economic and Industrial Democracy 147-212 
Draft Scheme - - - 1 48-1 51 

Commentary, by A. R. Orage - 152-212 




Fallacy of Marxianism — Administration is not the 
organ of policy-control — Definition of individual free- 
dom — Policy of industry rests with finance — The bank 
is its organ — Meaning of Democracy — The " change 
of heart " idea — The modern Pharisee. 


One of the most fundamental fallacies 
which has ever afflicted a just cause is 
the delusion so dear to the sentimental 
propagandist of the Labour Movement, 
that Labour (by which the broader-minded 
of such advocates mean labour both by 
hand and brain power) creates all wealth. 
With this idea goes inevitably the assump- 
tion that Capital and Capitalism are one 
and the same thing, both being of the 

Mention has been made of this matter 
before,* but the subject is of such outstand- 
ing importance at this time that no apology 
seems necessary for a further effort to clear 
away a little of the misconception in which 
the actual relationship of Capital, Labour, 

* " Economic Democracy." (Cecil Palmer.) 



and the Community has become involved, 
as much from the distortion and suppression 
of facts by the Financial Hierarchy as 
from the misdirection of organised Labour 
by persons of more zeal than discretion; 
a misconception which is tragic in its 
influence on the strategy of the Labour 
Movement, since it results in for ever 
placing that strategy in a position of 
antagonism to the interest of the rest of 

Before proceeding to the further exam- 
ination of the facts, it may not be without 
value to note the willingness with which 
the orthodox — i.e., capitalistic — Press is 
prepared to allow this contention, or, at 
any rate, its implications, to go by default. 
Witness the unctuous agreement, heard 
on all sides, with the sentiment that 
Labour, as such, should increasingly share 
in the *' control " of industry. This 
sentiment is, of course, derived from the 
major premise, because it is clear that 
if Labour produces all wealth, then the 
deraocratic control of Labour by itself — 



i.e., elective and representative industrial 
administration — means the democratic 
control of the production of wealth. 

It is amazing how this error has misled 
millions of men and women, determined to 
assert their claim to consideration, whose 
experience of life is yet su^cient to expose 
the fallacy of it. The foreman controls 
the workshop and all who labour therein; 
does he then control production? But 
perhaps the manager, who controls many 
foremen, is the ultimate focus of power ? 
Ask him, and he will tell you that he is 
the slave of the sales department on the 
one hand and the chairman of the board 
on the other. The chairman must clearly 
be seated on Olympus; but observe this 
demigod when, faced with a deficit on the 
year's working, he endeavours to con- 
vince a shareholders' meeting that all is 
well with their undertaking, because the 
staff is contented and the product is un- 
rivalled. It will avail him little that each 
shareholder may be a believer in demo- 
cracy in industry. 



Yet in the face of the determination of 
organised Labour to *' share in the control 
of industry," see how a broad-minded 
Press agrees with them. It is all for a 
Guild Socialism of the glorified Whitley 
Council variety. The columns of any 
metropolitan new^spaper in England or 
America are open to the description or 
discussion of such *' committee " schemes, 
and will print reams of articles by their 
more distinguished advocates, even where 
they condemn their conclusions. From 
which the cynically minded may justifi- 
ably conclude that there is no danger to 
capitalism in a bushel of them. 

But to resume our search for the true 
seat of power. It is clear that if we replace 
the foreman, the manager, and the chair- 
man, each by a committee, all that we do 
is to affirm our belief that it is better to 
have half a dozen men giving orders than 
one man — a belief that may or may not 
be well founded, but, in any event, is 
not likely to result in the democratic 
control of production. The shareholders, 



it is true, are already a committee, and 
would seem at first sight to have no master; 
but how much latitude in making decisions 
have they ? 

Now, this is the citadel of the fortress 
we are attacking, for power to make decisions 
is freedom for the individual, and a share- 
holder in a trust-capitalistic manufacturing 
enterprise has no power to change the 
fundamental poHcy of the concern, which 
is to pay its way as a means to the end of 
maintaining and increasing its financial 
credit with the hanks. 

Hence we see that the last word on policy 
is with finance, not with administration, 
and is concerned with the control of credit 
by the banks; and to democratise the policy 
of production we have to democratise the 
control of credit. 

Before concentrating on this problem 
of the democratisation of the bank, and 
of the practical application of the credit 
principle which it administers, the satisfac- 
tory solution of which will have incom- , 
parably greater influence on the future of I 



the world than any other single change of 
which we can conceive at this time, let 
us consider for a moment Democracy itself 
as an organised system of carrying on the 
business of society as a whole. 

Democracy is frequently and falsely 
defined as the rule of the majority — a 
definition quite sufficient to account for 
its unpopularity with many persons whose 
opinion is not unworthy of consideration. 
As so defined, it is a mere trap, set by 
knaves to catch simpletons; the rule of the 
majority never has existed, and, fortunately, 
never will exist. If such a thing were 
possible, it would be the ultimate Terror, 
beside which the worst individual despot 
would seem a kindly patriarch. It is 
under cover of this definition, however, 
that unscrupulous men in every country 
are enabled to evade the consequences 
which antisocial intriguing would bring 
upon them, by working up a spurious, 
because uninformed, public opinion, which 
is the greatest barrier to effective and rapid 
progress known to the hidden hands of 



finance and politics. Real democracy is 
something different, and is the expres- 
sion of the policy of the majority, and, 
so far as that policy is concerned with 
economics, is the freedom of an increasing 
majority of individuals to make use of 
the facilities provided for them, in the first 
place, by a number of persons who will 
always be, as they have always been, in 
the minority. 

Any other conception of democracy 
simply does not take cognisance of the facts, 
does not believe in human nature as it is, 
and, consequently, taking its stand on 
the doctrine of original sin, requires as a 
first postulate of improvement a change 
of heart which is expected to make all 
men and women over again, so that a 
standardised world will be uniformly attrac- 
tive to all of them. A standardised world 
requires someone to set the standards, 
and it is to this authoritative democracy 
that the capitalistic governments of the 
world are willing, if they must, to resign , 
the sceptre of Kaiserism and plutocracy,-^ 


knowing quite well that it will avail no- 
thing that Labour has its administrative 
councils, its shop committees, its constituent 
assemblies, or even its Soviets, so long as 
the control of credit enables the real policy 
of the world — the policy which controls 
the conditions under which mankind obtains 
board and clothing, without which the 
mightiest genius is more helpless than a 
well-fed idiot — to be dictated from the 
sources out of which it now proceeds. 

Let no one imagine that real democracy, 
however, has its opponents only amongst 
the great financiers, ecclesiastics, and 
politicians. There are just as many po- 
tential despots amongst the careerists of 
the Labour movements as among the 
employing class, and in a mere choice of 
tyrants it is quite a sound principle to 
keep the devil you know in preference to 
the devil you don't know. 

A warning in regard to this aspect of 
the situation is contained in the arbitrary 
division of society, now so popular with 
captains of industry, '' sane '' Labour 



leaders and extremists alike, into ''workers*' 
and a " parasitic class/' the latter being 
supposed to be without useful function, 
and having no " right '' to exist, held up 
to execration as battening on the virtuous 
industrial system, and robbing it, by so 
much as that class consumes, of what is its 
moral due. I realise the unpopularity of 
any defence of this class, but it is a defence 
which has to be undertaken, not from any 
special liking for the task (though Mr. Ber- 
trand Russell, in his defence of idleness, 
has shown that to be quite reasonable), 
but because the attack on it leads nowhere 
useful. In the first place, when we leave 
the easy ground of generalities and come 
down to concrete detail, we find it over- 
whelmingly difficult to define useful work. 
Not only is it difficult, but it is in the highest 
degree mischievous. 

In spite of the fact that the Founder 
of Christianity directed his most biting 
invective against the legal and juristic 
habit of mind of the priests and scribes 
" who made the Word of God of none 



effect by their traditions/' this desire to 
classify and pass sentence upon every 
variety of human effort has been the 
curse of the churches and codes of the 
Christian era. At this time there goes up 
in Central Europe a cry for bread such as 
(perhaps) the world has not known for cen- 
turies; the mutterings of coming revolution 
are heard in every country; yet the victims 
of this deadly habit of mind, both on the 
side of Capitalism and Labour, are still 
explaining that, unless a man do '' useful " 
work, neither shall he eat ; regardless of the 
fact that both England and America are 
glutted with goods, that in both countries 
foodstuffs are allowed to rot, or are being 
actually destroyed, in order, to keep up 
prices, the high-priests of industry cry for 
more and yet more production as a con- 
dition of existence, even though that pro- 
duction may be, as it often is, detrimental 
to society in general, and the worker in 

On the side of Labour a great part of the 
force which this movement against '' para- 


sitism '* has acquired is due to the idea 
that it is only by the strenuous efforts of 
the orthodox worker, straining every nerve 
and muscle, that the world is maintained 
at its present standard of living; whereas 
it is, on the contrary, only by the most 
gigantic and organised sabotage on the 
part of the capitalistic system and Labour 
itself, not only positive but negative — by 
the refusal^ tp_ use modern tools and pro- 
cesses, as well as the misuse of them — that 
the standard of living is prevented from 
rising higher, with the expenditure of less 
human effort, than the most exacting 
would require at this time. In effect, the 
validity of the Labour protest rests, not 
on any prerogative Labour possesses of 
fixing the value of any individual to 
Society, but on the practical question as 
to whether Society would be benefited if 
the protest against parasitism were upheld. 
Since it may be contended that no reasoned 
argument has yet been brought forward 
to show that the '' just " payment of Labour 
is not measured by the total of what Labour 



produces, it is one of the objects of the 
following pages to show that to strain after 
'* justice" in this manner is not only to 
miss it, but is the sure and certain way of 
handing over the world afresh to the tender 
mercies of the high- priests and the scribes. 
In passing, it may be observed that Labour 
has never been in danger from the Idle 
Rich — it is the hardworking rich who are 
the chief champions of the status quo. 



H. L. Gantt on Industrial Efficiency — The owner- 
ship of the product of industry — The basis of collec- 
tive industry — The leverage of real capital — The 
flow theory of prices and purchasing-power — The 
artificial necessity for exports. 


The late Mr. H. L. Gantt, one of the most 
capable and enlightened industrial engineers 
that America has produced, is reported 
to have said that the industrial efficiency 
of the United States was about 5 per cent, 
in 191 9. He was under no delusion as to 
the cause of this; it was because it did not 
pay those in control of the industrial pro- 
cess to make it any higher, not, be it noted, 
because those operating it did not know 

This is a remarkable statement, coming 
from such a source, and has a number 
of important implications. If we assume 
that an overall industrial efficiency of 
75 per cent, is attainable (by which 
we mean that 75 per cent, of the out- 
put possible with a given number of 
man-hours, working on a given plant, 


might be obtained and distributed), 
and we also assume, as is the case, 
that the United States is able to pro- 
duce all she wants by working at the low 
efficiency quoted by Mr. Gantt, then, 
without working any harder, she could, 
under proper conditions, produce the same 
amount by the same number of persons 
working one-fifteenth of the time they now 
work — i.e., about thirty minutes per day 
instead of about eight hours, or by one- 
fifteenth of the present number of persons 
working the same hours. As the economic 
distribution system stands at present, such 
a condition of affairs is impossible of attain- 
ment, because, although the goods would 
be produced, the purchasing-power to buy 
them would not be distributed. The enor- 
mous increase of sabotage of all descriptions 
which is the outstanding feature of con- 
temporary industry is due to the blind 
effort to equate purchasing-power to pro- 
duction without altering the principles of 

Now the possibility of meeting the re- 


quirements of society for goods and services 
in a small and decreasing fraction of the 
man-hours, or time-energy units, which 
society has at its disposal comes from 
improvements in the industrial machine 
as a whole. If there is one thing more cer- 
tain than any other in this uncertain world 
it is that the industrial machine is a com- 
mon heritage, the result of the labours of 
generations of people whose names are 
for the most part forgotten, but whose 
efforts have made possible the triumphs 
of the past hundred years. Therefore, 
^ while society is justified — i.e., is judicious — 
in demanding that this machine shall be 
operated by those capable of obtaining 
the best results from it, irrespective of any 
other considerations whatever, society as 
a whole, not the operators — Labour — or 
any other function of society, has a *' right '* 
to the product, a '' right" founded in the 
nature of things because, if it is denied, 
the machine begins to develop abnormal 
friction, with a consequent loss to every 
constituent member of society. 



It must be borne steadily in mind in 
considering this question that the object 
of industry is not work for its own sake; 
the industrial system exists firstly because 
society has need of goods and services. 
The fact that the creative instinct of 
mankind can find satisfaction in crafts- 
manship is beside the point; men associate 
together in collective industry because they 
hope, and are justified in hoping, that there 
is an unearned increment in association ; 
that they will thereby obtain the required 
goods and services with less effort than by 
isolated endeavour. 

Let me, if possible, make this point clear 
beyond any misunderstanding. It is a 
question of priority. After the fundamental 
requirements of humanity for food, cloth- 
ing, housing, etc., have been met, any excess 
energy in the community must find an 
outlet — any man whose energy is in excess 
of that necessary to maintain his vital 
processes wants to work, in fact must work 
in some way, as an elemental proposition 
in dynamics. Therefore the more this 
^ 19 


maintenance of life can be shifted from the ; 
backs of men on to the backs of machines | 
the more important it is to find a creative; 
outlet for the human energy released, andj 
the more certain is it that a considerable 
portion of this energy will, without com- 
pulsion, be devoted to the improvement 
of the industrial machine. That is to say, 
if a practical policy based on these con- 
siderations be pursued there will be a 
fall in the man-hours required for routine 
or operating work, and a consequent rise 
in the man-hours available for design and 
research work. The industrial machine is 
a lever, continuously being lengthened by 
progress, which enables the burden of 
Atlas to be lifted with ever-increasing 
ease. As the number of men required to 
work the lever decreases, so the number 
set free to lengthen it increases. It is 
true that, owing to the defective work- 
ing of an outworn financial system, the 
lengthening of the lever has been ofiset 
by obstacles to its beneficent employ- 
ment, but these very obstacles, by raising 



up a worldwide unrest, will secure a 
rectification of the means of distribution, 
which is the first step to a better state of 

In order to see that this is so it is 
necessary to restate in general terms an 
argument which has been dealt with else- 
where in detail {'' Economic Democracy"). 
/ A factory or other productive organisation 
I has, besides its economic function as a 
! producer of goods, a financial aspect — it 
1 may be regarded on the one hand as a 
I device for the distribution of purchasing- 
I powder to individuals through the media of 
wages, salaries, and dividends; and on the 
other hand as a manufactory of prices — 
fii^ncial values. From this standpoint its 
payments may be divided into two groups : 

Group A — All payments made to indi- 
viduals (wages, salaries, and divi- 

Group B — All payments made to other 
organisations (raw materials, bank 
charges, and other external costs), 

21 c 


Now the rate of flow of purchasing-power to 
individuals is represented by A, but since 
all payments go into prices, the rate of flow 
of prices cannot be less than A + B. The 
product of any factory may be considered 
as something which the public ought to be 
able to buy, although in many cases it is an 
intermediate product of no use to individuals 
but only to a subsequent manufacture ; but 
since A will not purchase A+B, a propor- 
tion of the product at least equivalent to B 
must be distributed by a form of purchas- 
ing-power which is not comprised in the 
descriptions grouped under A. It will be 
necessary at a later stage to show that 
this additional purchasing-power is pro- 
vided by loan-credit (bank overdrafts) or 
export credit. 

This somewhat elusive conception, the 
grasp of which is vital to an understanding 
of the modern economic problem, may be 
made clearer by considering Labour as an 
intermediate product, the raw material of 
further production, which is, of course, the 
orthodox capitalistic view, and imagining a 



Labour corporation — for instance, a trade 
union — as being in a position to make up 
the costs and consequently the selhng price 
of this commodity on orthodox principles. 
In this case using small letters, group b 
would include all the costs of living — i.e., the 
overhead charges of the men who are the 
'' machines " for the production of Labour 
— and group a would be their direct remun- 
eration, and the '' factory cost '' of the 
commodity would again be a + b. Let 
us call this '^ factory-cost-of-Labour '' c. 
Now c cannot be greater than A in the pre- 
ceding formula for material - production 
cost, and yet if human beings are to buy 
A + B with their earnings and dividends, 
A + B must be included in c. Again we 
see that this is only possible by the inclu- 
sion of an external factor — credit— which 
allows an ostensibly stable value c to mean 
different things at successive intervals of 

The general statement has been put with 
great conciseness by '' H. M. M.'* in a letter 
to The Guilds'man: 



'' The explanation of this is that in highly 
developed countries such as ours practically 
air purchasing -power commences life as a 
credit created by the banks. These credits 
are created at the instance of manufacturers 
and dealers; are distributed by them in 
the shape of wages, salaries, and profits, 
and spent. Trade is thus almost entirely 
carried on with borrowed money or credit, 
although the fact may be hidden at various 
points. The goods we buy are produced 
on borrowed money; the money we buy 
them with goes to extinguish the debt; 
but it itself is derived from credits that 
have been borrowed from the banks, and 
consequently its value must reappear in 
selling prices somewhere, and be recovered 
again from the consumer if the banks are to 
be repaid their advances. It is clear, there- 
fore, that one credit is only cancelled by the 
creation of another and larger credit.*' 

In considering the above arguments, 
let not the reader allow himself to 
become confused by the fact that B has 


at some previous time been represented 
by payments of wages, salaries, and divi- 
dends. While this is of course true, it is 
irrelevant — it is the rate of flow which 
is vital. The whole economic system is 
in ceaseless motion — purchasing-power is 
constantly flowing back from individuals 
into the credit system from whence it came, 
and if the outflow is less than the inflow, 
someone has to lose purchasing-power. 

At the moment the point to be borne in 
mind is that B is the financial representa- 
tion of the lever of capital, and is con- 
stantly increasing in comparison with A. 
So that, in order to keep A and the goods 
purchased with A at a constant value, 
A + B must expand with every improve- 
ment of process, while at the same time 
this increased production must, in the 
nature of things, be of such a nature as will 
enable it to be paid for under Group B. 
It must not, therefore, be an ultimate 
product — something that human beings, 
as such, require for their personal use — but 
must take the form of factory buildings, 


machinery, etc., for the production of which 
bank overdrafts can be obtained, or else 
be production for export. A consideration 
of these matters will remove any difficulty 
in understanding why the orthodox manu- 
facturer is calling so loudly for increased 
production, increased exports, and economy 
of consumption by individuals, without 
obtaining any very enthusiastic response 
from Labour; and why, in consequence, the 
cost of living rises daily. 



The two divisions of Estate — The business of 
mobilising credit — Effect on prices — And on variety 
of production — Why the public does not control 


The estate of any society or community 
may always be considered as having two 
component parts — wealth and capital. 
If this statement is considered from a 
realistic point of view it means that the 
said estate consists not only of ultimate 
commodities, services, and amenities in 
esse, but the capacity for reproducing or 
enhancing them if destroyed. This latter 
component is essentially bound up with time 
— it involves a rate. 

Finance is, or should be, a reflection in 
figures of physical facts, therefore we ought 
to, and in fact do, find that the physical 
facts of social estate are represented by two 
divisions in financial estate — cash and 
credit : cash being the instrument of retail 
transactions or transfers of ultimate com- 
modities; and just as real capital represents 



potential production of ultimate com- 
modities, so financial credit is convertible 
into the cash which will buy them. 

Now, it has been universally recognised 

that the minting of money is a prerogative 

j of the community, State, Government, or 

whatever name we choose for the moment 

^ to apply to the body politic, and the coining 

\ and counterfeiting of it has uniformly been 

V4)enalised; but the creation of financial 

credit which is convertible into money has 

become a lawful, recognised and respected 

occupation open to any association or 

individual who can obtain the confidence 

of the community and is in possession 

of the necessary facilities and technique. 

Let me explain. 

Imagine an individual possessed of a 
reputation for wealth and probity to open 
an office in the City of London. It is 
immaterial whether he has the wealth 
or not. Such a man may conceivably 
go into business as a dealer in debts — 
i.e., a large number of persons may find it 
convenient to go to him with their claims 


against each other for collection and settle- 
ment. At first he will collect the money 
(cash) from each debtor and pay it over to 
his client, but it will soon come to pass, 
as his business expands, that there will 
be cross-debts. Brown will owe Jones 
for boots, but be owed by Robinson for 
corn, who has a claim against Jones for 
leather. It will be simpler for everyone 
concerned that our debt-dealer should 
'* clear '' or set off these debts against 
each other and pay over the balance where 
it belongs. But the final creditor may 
and will know that he will have more 
similar transactions and will instruct his 
debt-dealer or banker to hold this balance 
against such a contingency. The bank- 
ing business expands; and everyone finds 
it simpler to leave their balances with the 
banker to the '' credit ** of their accounts, 
circulating in place of coin pieces of paper or 
cheques instructing the aforesaid banker 
to adjust their credits in accordance with 
the transactions they represent. So far so 
good. 1 Enter now the enterprising manu- 
/ 30 



facturer or trader, who explains to the 
banker that he has received a large order, 
wishes to purchase raw materials whose 
value is in excess of his '* credit " balance, 
and would like to deposit the title-deeds of 
his factory as security for a loan. The 
banker agrees, on terms; and the borrower 
is allowed an " overdraft " on his credit 
account. As by now only a small pro- 
portion of the banker's business is done 
in cash, this means for the most part a 
circulation of cheques. But the important 
point to notice is that this overdraft is just 
as absolutely new money as if the hanker 
had coined it or printed bank-notes for the 
amount. None of his other clients have 
the figures of their credit accounts altered 
by the transaction, and the title-deeds 
deposited as security are returned unal- 
tered when the '' overdraft '' is balanced. 
This new credit, however, dilutes the pur- 
chasing-power of all other money so soon 
as it becomes operative as a demand for 
goods, because under the financial '' law '' 
of supply and demand prices equal effective 



demand — i.e., desire to purchase backed 
by money to buy, divided by number of 
articles for sale. 

Observe that the transaction is a 
proper and, from certain points of view, 
desirable one. Production is necessary, 
and this transaction enables production to 
take place. It is flexible; an enterprising 
individual without sufHcient purchasing- 
power was enabled to draw it from the 
community and to make something. From 
the producing side it is a good system, 
although it leaves to the banker the decision 
as to whether the production is desirable 
production. But let us follow it a little 
farther on the assumption that it is no use 
producing things unless someone gets them. 

Our manufacturer, having got his over- 
draft, *' gets busy." More men are taken 
on, not only at his factory but at the fac- 
tories of the allied traders who supply 
him with intermediate products, and, as 
our Federation of British Industries would 
say, there is more employment for everyone. 
Quite so. But the first thing to note is 


that all these concerns are distributing 
purchasing-power to individuals, in the 
form of wages and salaries, ahead of pro- 
duction, which causes a rise in the price 
of existing ultimate commodities, the only 
commodities that individuals buy; or, to 
put it in the way described above, all money 
existing is diluted. Secondly, they are 
distributing this purchasing-power obtained 
out of " credit '' largely (and this is in- 
creasingly true) in respect of capital pro- 
duction — i.e., things which in themselves 
are of no use to consumers : tools, factories, 
etc. The community as a whole, therefore, 
is producing and being paid for real capital 
as well as ultimate products, and much of 
the real capital is permanent and survives 
the lifetime of its producers. 

Now consider these points in connection 
with the proposition explained in the 
foregoing chapter — viz., that the current 
flow of wages, salaries, and dividends is 
less than the current flow of price- 
values of articles produced — bearing in 
mind the fact that prices vary between 



a lower limit represented by cost of pro- 
duction and an upper limit defined by 
''what they will fetch" — i.e., effective 
demand. It will be seen, as has been 
pointed out by Mr. A. R. Orage and 
other writers on economic subjects, that 
the wages and salaries (already insufficient 
to buy the whole production) tend to be 
diluted in value until they represent 
the subsistence allowance of the persons 
concerned — in other words, total prices 
of ultimate commodities barely necessary 
for the accepted standard of life tend to 
equate themselves to the total effective 
purchasing-power of individuals, and this 
is true even if dividends to individuals 
are included and are widespread. Conse- 
quently, and this is the all-important 
point we wish to make, although the un- 
regulated system of credit-issue and price- 
making distributes purchasing-power both 
in respect of capital production (tools, 
factories, intermediate products) and 
ultimate products (necessaries, services, 
amenities), it takes back in the prices of 


ultimate products only, practically the whole 
of this purchasing-power, leaving the com- 
munity, considered as a permanent insti- 
tution, in the position of having bought 
both the plant and the product, but having 
only got delivery — i.e., control — of the 
product. Such a state of affairs so long 
as it continues makes the control of the 
policy of the world in the interest of the 
community a mere sentimental chimera — 
no nationalisation, guildisation, or any 
other administrative manipulation can 
affect the existing control otherwise than 
to introduce friction into it (at the cost 
of everyone concerned) so long as the 
prices of ultimate product — the taking 
back of purchasing - power derived from 
credit — are equal to or greater than '' costs " 
— the dispensation of purchasing - power 
derived from credit. Further, the exist- 
ing control is semi-automatic ; every increase 
of credit-expansion on these terms means 
a greater capital-production and a pro- 
portionately smaller use of that capital to 
deliver ultimate products. 


AH credit-values are communal — Credit and 
price making are complementary and indispensable — 
Why the present economic system fails — Why the 
present control of production is anti-public — The 
climax approaching — The advantage of the dividend — 
Destined to succeed the wage — Centralisation of 
Finance and Labour- Power — Misdirection of effort — 
The precedent condition of Economic Democracy. 


As a result of the foregoing analysis, then, 
it seems certain that : 

(a) All credit- values are derived from 
the community, regarded as a per- 
manent institution; not merely from 
the present generation of workers " by 
hand and brain/' 

{b) The rate of production is pri- 
marily dependent on the scientific and 
cultural inheritance of the community ; 
secondly, on its tools and plant (both 
of which have a rough financial equiva- 
lent in Group B, Chapter IL) ; and, 
thirdly, on personnel. Personnel, how- 
ever, sets the *' pitch " — i.e., determines 
the efficiency of the use of capital, for 
any given policy, and the arbiters of 
policy, whoever they may turn out to 


be, have an interest in selecting the 
finest personnel available to operate it. 

(c) The financial system recognises 
these facts by deriving all financial 
values from credit, which takes all 
these factors into account. As, how- 
ever, the existing system of making 
prices includes all dispensations of 
purchasing-power to individuals during 
the processes of production {i.e., 
*' costs '*), in prices; and all '* prices *' 
are purchasing-power taken from 
individuals, it must surely be clear 
that credit-issue and price-making 
are the positive and negative aspects 
of the function which controls the 
economic life of the community, and 
so controls the community itself. 

(d) The community does not control 
credit-issue or price-making, at present. 

It is probable that some system of credit- 
issue and price-making founded on a policy 
of which society, as a whole, approves, is 
an integral part of any immediately pos- 



sible civilisation; and if this be so, it is 
of the highest importance to decide on 
that poHcy, and to see how it differs from 
the existing one, against which society is 
in rebeUion. 

It is above all things desirable to 
recognise that the problem is a practical 
one, and that nothing is to be gained by 
assuming that Capitalism in its present 
form has always been fundamentally bad. 
The capitalistic system is doomed because 
the world has ceased to have need of it in 
that form, not because it was the invention 
of the devil. That is not to say that there 
is not a good deal of original sin about, in 
the opposition to its modification ! 

To understand the trend of the present 
system from the standpoint of policy, in 
the light of the above analysis, we 
must notice that it results in keeping 
the majority of persons employed ap- 
proximately eight hours per day either 
in producing, distributing, or safeguarding, 
what is admittedly a deficient supply of 
ultimate commodities, and this in spite 



of the advancement of science and 
its application to Production. We see 
also that whatever the amount of these 
ultimate commodities produced, and how- 
ever much cash the community earns, 
the aggregate prices of mere consumption 
goods can be made to equal the aggregate 
earnings in respect of the production of 
both capital goods and consumption goods, 
either by keeping the articles in short supply 
or making monopoly arrangements to set 
prices at a *' suitable '' level; but, in any 
case, prices of capital goods plus prices of 
consumption goods are in excess of avail- 
able cash demands because of the credit 
factor in the prices ; a relation which results 
in the control of plant and improved process 
passing from the producers, as fast as 
produced, into the hands of the credit- 
mongers and the price-makers, rather 
than into the hands of the community to 
whom it belongs in the nature of things. 
This concentration of control being 
assisted by a short supply of ultimate 
products until competition is finally 



eliminated, those having control have 
every inducement to deliver the minimum 
quantity of goods at the highest obtainable 
prices, so long as these, in the aggre- 
gate, absorb the distributed purchasing- 

Now, the important point to observe is 
the effect of all this on the use made of 
the collective energy of society. It seems 
likely that, at the beginning of the Machine 
Age, the capitalistic system had the effect 
of concentrating effort on the expansion of 
real capital to an extent which no other 
arrangement could have brought about in 
so short a time, to the ultimate advantage 
of everyone. Not only so, but the com- 
petition which preceded the Trust Era kept 
production of ultimate products up, prices 
and profits down, and the consequent area 
of distribution, through the agency of 
wages, widespread. The evolution from 
the individual entrepreneur and private 
banker into the limited liability company, 
with its large body of shareholders, and the 
great Joint-Stock Branch Banking Systems 


(obviously nearing complete co-ordination) 
has widened the area of the distribution of 
purchasing-power through the agency of 
dividends, while, at the same time, the 
necessity for '' direct " wage-earning labour 
has been diminished by the increased 
utilisation of mechanical power and machin- 
ery, which tends to contract the area of 
the distribution of wages. 

It may be noticed, in passing, that had 
these processes been allowed to proceed 
unhindered (which was probably a prac- 
tical impossibility), several things would 
have happened to clarify the situation. 
There would, firstly, have been such un- 
employment that the wage-system would 
have become unworkable long ago. It 
would have been recognised that the 
dividend is the logical successor to the wage, 
carrying with it privileges which the wage 
never had and never can have, whether 
it be rechristened pay, salary, or any 
other alias; because the nature of all these 
is a dole of fur chasing-power revocable by 
authority, whereas a dividend is a payment, 



absolute and unconditional, of something 
due. The first is servitude, however dis- 
guised, the second is the primary step to 
economic emancipation. It would then 
have forced itself on the general attention 
that all purchasing-power comes out of 
credit, and that the economic life of 
the community is controlled by its dis- 
tribution. (It may not be superfluous to 
point out that there is no more inevitable 
connection between dividends and " pro- 
duction for profit '' than between '' pay '* 
and Socialism.) 

With the Trust and the Joint-Stock 
Banking System came agreements restrict- 
ing price-competition, and with that came 
the apotheosis of Trade Unionism, forced 
to meet the situation by methods identical 
in principle, leading in both cases direct to 
sabotage. We have already seen that if an 
essential article can be kept in short supply, 
its price can be made to suit the policy 
of the price-maker. Under the existing 
arrangements, labour is such an article, 
and so is the collective thing we call *' the 



standard of living.'* Because the credit of 
the community — which, if distributed, would 
have resulted in universal dividends — has 
been largely centralised in the hands of the 
Banks and industrial combines, all of 
them struggling for power, that part of 
the community which still gets its purchas- 
ing-power through the medium of wages and 
salaries has been faced with starvation, 
unless it *' earned '* them, machinery or 
no machinery. The result is common 
knowledge: a widespread conspiracy to 
'' make work '' for which I, for one, see 
no alternative under the circumstances. 

Similarly, the Trusts and Banks, obliged, 
as a condition of existence under the system, 
to reabsorb the majority of the credit 
distributed as wages, through the agency 
of prices, restricted the supply of ultimate 
commodities, not only by their own forms 
of sabotage, but by directing production 
more and more to capital goods and goods 
for export. 

We are now perhaps in a position to see 
to where the present system has brought us. 


Real capital, the lever of Atlas, has become 
the preponderating factor in production, 
but is not lifting its load because the 
only conceivable point d'appui of capital 
is credit. (The public can no more control 
capital directly, than a passenger, or a 
committee of passengers, can instruct an 
engine-driver directly as to the running of 
his engine.) The community does not 
control credit, and the policy of its 
present controllers is to prevent the com- 
munity from getting control by taking 
back in prices the maximum purchasing- 
power, a condition which is assisted by 
restriction of the supply of ultimate com- 
modities by export or otherwise. 

The fundamental idea which it is neces- 
sary to grasp is that you cannot get exist- 
ing and future credit-power into the hands 
of the community, unless the distribution of 
purchasing-power, both in respect of capital 
increases, as well as in respect of ultimate 
products, is only taken back from the 
community in the proportion that consump- 
tion bears, not only to these products, but 



to capital production as well, using capital 
in just as wide a sense as the credit-issuer 
uses it. 

The result of this is that as a condition 
of such a state of affairs, prices of ultimate 
commodities would have to be fixed, not 
with regard to what they would fetch, but 
with regard to the above ratio, which would 
result in a price which would be a fraction 
of cost; the difference being made up to 
the entrepreneur by an issue based on the 
actual capital still remaining as a result 
of effort represented by total *' cost," 



Breakdown imminent — The attack on ownership — 
A phantom enemy — Analysis of Nationalisation — A re- 
version to the Middle Ages — The Two Great Policies 
— The lesson of Russia — A financial problem of 
centralised credit. 


While the fact that the working of the 
existing economic system is breaking down 
is plain to any but the wilfully blind, there 
is astonishing diversity of opinion as to 
the cause of the trouble, even amongst 
those who have made the subject their 
special study — or, perhaps it would be fair 
to say, especially amongst such persons. 
But a considerable and articulate body 
of opinion has committed itself to the behef 
that the root of the trouble lies in the private 
*' ownership '' of the means of production, 
by which presumably is meant the plant, 
raw material, etc., and that in consequence 
the remedy is to be found in Nationalisa- 

The prescription follows logically from 
the diagnosis, but unfortunately the diag- 
nosis is defective — or, rather, superficial. 


Before considering the prescription, there- 
fore, it may be valuable to consider what 
can be conveyed by the term '' owner- 
ship '' in connection with such a concern 
as a boot factory, at the present time. 
Taking the simplest case of a one-man 
ownership, the owner might live in the 
factory, if he wanted to, or he might 
burn it down, if it was not insured, 
or otherwise destroy it, in all of which 
cases it would cease to be a boot factory; 
or he might appoint himself manager, or 
he might sell it, in which case he would 
cease to own it. The essential point is 
that, considered as a boot factory, it is 
not of any direct use to its owner after he 
has had half a dozen pairs of boots out of 
it each year. What, however, is of value is, 
firstly, the money- v^ le [i.e., credit-value) 
of it, which is entirely based on his power 
to make prices for its product in excess of 
its costs, and, secondly, the pleasure which 
the control of it may give him. 

Take away his power to make prices for 
its product in excess of its costs, and yon 



have taken away all its property value, 
leaving only the administration value. 
Such a state of affairs can be brought 
about without legislation by selective 
financing. However it is brought about, 
the fact that it is possible proves indisput- 
ably that it is the credit, and not the physical 
property, which has given private '* owner- 
ship *' so powerful a grip on the com- 

But since the blessed word Nation- 
alisation is said to be the only alternative 
to chaos, let us consider what meaning 
can be given to it, when we leave the plane 
of broad generalities so beloved of its ad- 
vocates, and come down to the region where 
things are actually done — a region in which 
generalities lose value and detail reigns 

As its exponents would be the first to 
admit, the Nationalisation policy cannot be 
fairly judged by its first-fruits — e.g., the 
Post Office telephone service, etc. To get 
to the millennium by this route, it is neces- 
sary to nationalise everything tangible 



either by expropriation or buying out at a 
valuation. Passing over the appalling 
problems raised by either course, let us 
imagine them to be surmounted and the 
object achieved, and the community to be 
back in the position existing in the twelfth 
century — i.e., all legal ownership to be 
vested in a central authority, now, how- 
ever, to be called the nation, or the people, 
instead of the king. It is obvious that 
some human beings must be in the posi- 
tion of administrators of this trust so 
formed, and there is room for ingenuity 
and difference of opinion as to the method 
of selection to be applied to these admin- 
istrators. But if anyone imagines that any 
method whatever will prevent these persons, 
once elected, from achieving supreme 
control of administration, then no doubt 
he will be able to explain why M. Lenin 
has not been prevented from introducing 
the most complete form of both military 
and industrial conscription that the world 
has ever known. 

The vital question, however, is not one 
53 n 



of administration; it is one of policy. 
There are only two great policies in the 
world to-day — compulsion and inducement ; 
and whatever the original policy of Russia 
under M. Lenin may have been, it has 
definitely become one of pure compulsion, 
since the first steps taken by the Soviet 
Republic were directed to the destruc- 
tion of financial credit, which is the 
instrument, however perverted, of a policy 
of inducement. Now, compulsion simpli- 
fies a good many things; it undoubtedly 
simplifies economic problems. Having 
obtained control of the machinery of com- 
pulsion, the productive process resolves 
itself into deciding what is to be produced, 
ordering some persons to do the necessary 
work, and shooting or starving them if they 
do not. Similarly, economic distribution 
resolves itself into the decision by a central 
body as to what it is good for people to have, 
issuing it to them by means of a form, and 
seeing that they do not get anything else. 
We attained quite a high efficiency along 
these lines in England durixig the Great 



War, and, as a matter of personal opinion, 
I have no doubt that a Labour Govern- 
ment, elected on a policy of Nationali- 
sation, would automatically find itself 
committed to such methods, just as a 
Capitalist Government uses them to 
conserve the partial centralisation it has 
already achieved. 

But imagining for a moment that, under 
the test of circumstances, a Labour Ad- 
ministration of a Nationalised State would 
remember all the hard things it said about 
wage-slavery, and determined at all costs 
against compulsion, and for inducement, 
it would be faced with a curious and inter- 
esting financial problem. Let it be borne 
in mind that, as each and every industry 
would be, in one form or another, simply 
departments of one great undertaking, all 
semi-manufactures, plant, etc., would simply 
be credit transfers from one department 
to another. Presumably, everyone would 
receive pay, and there would be some 
sort of a costing system which would 
allocate this pay as a cost against the 



product. Now, the State being the only 
producer, intermediate products would 
have no external market in this country, 
with this interesting result — that either 
all capital-production costs would be allo- 
cated against ultimate products, in which 
case prices of ultimate products would 
absorb at least the total earnings (pay) 
of the whole population, or alternatively 
only maintenance, depreciation, and ob- 
solescence of intermediate products would 
be charged against ultimate products, in 
which case prices would he less than costs 
by the ratio that capital would hear to con- 
sumption, but the community would have 
no possible means of utilising its cash 
savings. In either case, the community 
would have no financial control over 
the capital it had helped to produce; 
it might, by some system of Soviets or 
otherwise, obtain control, of an erratic 
description, over personnel and adminis- 
tration; but, as we have said before, the 
control of policy, which is the vital issue, is 
not resident either in personnel or adminis- 



tration; it is resident in finance — i.e., 

Nationalisation, then, means nothing 
more than centraHsed control of credit, 
the objective for which high finance in 
every country is striving, with as plausible 
a motive as, say, the Miners' Federation, 
and more technical capacity. 

Centralised financial credit is a technical 
possibility, but centralised real credit 
assumes that the desires and aspirations 
of humanity can be standardised, and 
ought to be standardised. Since financial 
credit derives its power from its nexus 
with real credit (a correct estimate or belief 
of the individual that something desired 
will be delivered), centralised financial 
credit-control will break up this civilisation, 
since no man, or body of men, however 
elected, can represent the detailed desires 
of any other man, or body of men. 




The two aspects of credit — Both based on psy- 
chology — The administrative basis and the machine- 
gun — The nemesis of Fabianism. 


One aspect of the problem of credit, 
the side which has been exploited by the 
financier, is psychological, but its base is 
realistic. In order to induce, by means 
of money, a miner to hew more coal than 
he wants for his own use, you must make 
him believe that the money which he will 
get for so doing is a means, and a better 
means than any other available, to get 
the things he personally wants in addition 
to coal. While this belief is of the essence 
of the arrangement, it is only stable as it 
approximates to knowledge that he will get 
what he wants. Now, knowledge rests on 
facts, otherwise it is delusion, and unless 
the money he earns <^oes get him what 
he wants, he will cease to work for a 
given sum of money. If what he wants 
is not there, then money will not get it 



for him, unless money controls produc- 

But there is another form of inducement 
which can be invoked, and that is fear. 
If you can imbue a man with the belief 
that it is more unpleasant not to do a 
thing than to do it, then he will do it, 
to the extent necessary to balance the 
motives; consequently, if you have in 
existence a strong centralised organisation, 
or an absolute monarchy, which is much 
the same thing, such an organisation or 
monarch is a good, sound reason why certain 
things should be done (because unpleasant 
things happen to those who defy such 
institutions), and they are, therefore, bases 
of credit. But the important thing to 
notice is that you must have the basis 
of credit either in its positive or negative 
aspect of inducement or compulsion, irre- 
spective of what forms the inducement 
and compulsion take; and that inducement 
derives from within, from the individual, 
while compulsion is from without, from the 
*' machine/' The whole problem of high 


policy reduces to a consideration of this 
proposition: What sort of a reason are we 
endeavouring to set up to convince men that 
certain things must he done first in order 
that more things may he done suhsequently ? 

Now, it has been the habit to regard 
money as being the root of all evil (what 
time the Churches and philanthropic 
institutions issue ever more insistent appeals 
for subscriptions of it), just as decent 
persons in America have explained that 
politics is too dirty a game for them to 
take a part in, and, in consequence, have 
let the Trusts run it and them. Money is 
a mechanism, and can be used or misused 
like any other mechanism, and if the 
population of this or any other country 
is willing to allow the mechanism of 
money to be controlled by the few, then, 
so long as inducement by money is the basis 
of credit, so long will the few control the 

M. Lenin saw that clearly; and he set 
to work to destroy money as a reason for 
doing things, by taking away the realistic 


basis of credit — he made so much money 
that it would not buy anything. But 
he went farther; he made it impossible, 
by nationalising industry, so to employ this 
" money *' that its holders had any control 
over production. The producer ceased 
to regard money as a good exchange for 
his production; barter proved, as it was 
bound to prove, impracticable, and pro- 
duction fell to nearly zero. A new basis 
of credit was required, and M. Trotsky 
obligingly stepped in with an excellent 
machine-gun corps. Observe what hap- 
pened. As soon as the credit-basis shifted 
from the bank-note to the machine-gun, the 
control of policy shifted from finance to 
administration, and not before. This is the 
major lesson of the Russian Revolution 
for those whose brains are not stupefied 
by catch phrases — that control by ad- 
ministration means absolute, not merely 
functional, militarisation, and that under 
it no freedom in any Western sense can 
exist. The personnel of such an adminis- 
tration follows the law which governs the 



selection of personnel in all power organ- 
isations (with the operation of which every 
country became sufficiently familiar during 
the Great War), and the society which 
groans under it becomes riddled with in- 
trigue, and breaks up from internal dis- 

The application of these considera- 
tions to the industrial situation in Great 
Britain and elsewhere must be obvious. 
At this time, the Labour Movement, as a 
result of generations of Fabian and similar 
propaganda superimposed on economic 
injustice, is in effect demanding the re- 
placement of finance by administration, 
under the delusion that Labour would 
supply the personnel of administration. 
Because inducement is inherently stronger 
than compulsion, or, as the older psychology 
would have it, because love is stronger 
than fear, such an arrangement is funda- 
mentally unstable, but it may be neces- 
sary for us to undergo the experience 
in order to be disillusioned. However 
that may be, the ultimate issue seems 



clear — that either after a period of painful 
dissolution all co-operative industry will 
cease, and we shall revert to a period of 
isolated endeavour, or else the community 
will recognise that the mechanism of ex- 
change is the life-blood of civilisation, and 
instead of foolishly endeavouring to abolish 
it will see that its circulation is controlled 
in the interests of the body politic. 

Of course, to force the metaphor a little, 
there may be intermediate complications; 
the maldistribution of this life-blood may 
cause another outbreak of the fever of 
war sufficient to kill the patient outright, 
and there are not wanting signs of this 

Short of this, the only visible agency 
which seems to have the fundamental 
capacity to ensure a decision one way or 
another is that of organised Labour, and 
organised Labour at this time shows 
susceptibility to the Border gibe of being 
'' strong i' th' arm and weak i' th' head.*' 



The Capital Levy — What it means — Who would 
pay it — The immunity of the price-maker. 


Another of the cliches to which the 
official Labour organisations have com- 
mitted themselves is that which goes by 
the name of the Capital Levy, in its various 
forms. It is so superficially familiar to 
everyone interested in these matters that 
no extended description of it is necessary; 
with variations it may be described as 
a graduated and ostensibly non-recurring 
tax on the money- value of individual 
property, real and personal, such value 
being estimated, not by its earning power, 
but on some basis such as market price 
or expert estimation. 

At first sight such a levy is an attractive 
expedient to a party concerned with the 
flagrant disparity in worldly circumstances 
to which '* Capitalism '' has at the moment 
brought us. If we can believe that there 



is a fixed amount of wealth in the world, 
and we see, as we do, that some have 
the good things of life while many have 
hardly the necessaries, it would appear an 
easy path to greater '' justice '' to take 
some of the " wealth *' off the fortunate 
ones, even though you do not directly give 
it to the remainder. Let us examine 
the project more closely, therefore. 

The law recognises two main classes of 
capital: ''real** — i.e., land, houses, etc.; 
and "personal" — i.e., stocks and shares, 
cash, etc., which latter are ultimately 
claims to some sort of " real " property. 
That is to say, ultimately all property of 
any kind or description is a claim on realty. 
Now, imagine all money values above, 
say, £5,000 held by individuals to be 
subjected to a capital levy. What actually 
happens ? The levy, remember, is on 
individuals by the ''State.'* The State 
has no concrete use for realty; it does not, 
broadly speaking, administer productive 
undertakings; consequently what it requires 
is a transfer of credit which it can apply, 

69 F 


say, to the reduction of the National Debt, 
which in itself is an agency for distributing 

Now, however steeply you graduate a 
tax it must leave some men '' richer '' 
than others. Remembering this, consider 
the course of events when the tax is 
collected. The owner of land has to sell to 
*' raise " the money for the tax. Who 
buys that land? Similarly, the owner of 
stocks and money parts with these. Who 
gets them ? There are two answers. 

If the titles to the land or shares are 
thrown on the market together there will 
be a slump in '' values '' which will 
affect not only those who are taxed but 
those who are not taxed, in so far as they 
have any possessions other than money. 
At first sight this seems a desirable result, 
but on further consideration it will be seen 
that as the National Debt is a money-debt, 
not a '' realty " debt, such a slump in 
values increases the real weight of the debt, 
because it requires a larger transfer of 
property at the lower price to liquidate a 



unit quantity of it. Since, as we have 
agreed, this transfer of actual property 
cannot be to the State in propria persona, 
it must be from persons with less money 
to persons with more money ; and the greater 
the fall in values, the greater would be this 
transfer of real wealth from the less rich 
to the more rich. That is one possible 

But there is a modification of this 
process possible. In order to avoid the 
fall in values that the liquidation of large 
blocks of securities would entail, the banks 
would be besieged for overdrafts with 
which to meet the calls of the levy. Which 
class of applicants would receive prefer- 
ence in this scramble for credit-issue ? 
Undoubtedly those whose prospect of re- 
payment seemed to rest on the surest 
foundation; and, unless the previous argu- 
ments have failed of their purpose, it will 
be plain that whatever costs may he incurred 
by a producer who controls a market can be 
recouped by him in prices from the consumer. 
Consequently, the banks would extend 



credit most readily to those whose power 
of price-making gave assurance of their 
abihty to collect the levy, in so far as it 
affected them, from the public, together 
with the banks' interest on the loan. 
Such persons would not only not have 
to part with any property, but would 
probably be found in a position of com- 
manding advantage from which to acquire 
the property thrown on the market by 
their less fortunate neighbours — a result 
which, though differing slightly in method, 
results in the same conclusion as in the 
previous case: that instead of such a 
levy being a transfer from the rich to the 
poor, it becomes a transfer from the con- 
sumer to the price-maker and the credit- 

This is another way of stating the 
theorem on which stress has previously 
been laid in these pages. Under the exist- 
ing economic arrangements, industry can- 
not be carried on unless the price of an 
article includes all the costs — i.e., dispensa- 
tions of purchasing-power — which have been 



incurred during its production. If a cost 
is not included in the price, then the price- 
maker becomes poorer, and eventually 
goes out of business. You cannot tax a 
capitalist-producer effectively, because his 
existence as a producer depends on his 
ability to pass on any expense incurred 
to the consumer. And it will be admitted 
by any unprejudiced observer that no 
excessive reluctance to avail himself of 
this privilege is noticeable in the behaviour 
of the average entrepreneur. 

It is, however, possible to attack the 
Capital Levy on more general grounds also, 
if it be realised that the situation with 
which we are faced is only accentuated 
by and not fundamentally due to the 
destruction of war. If the economic 
system under which we are working is a 
sound system, then it is a flagrant '* injus- 
tice '' that such persons as do well out of it 
should be penalised; and if it is unsound, 
as it is, then the Labour Party, which clearly 
regards itself as the sole political con- 
cessionaire of justice, should be too high- 



minded to believe that an unjust system 
is improved by working it unjustly. 

The capitalist system is tottering to its 
fall, but, like the Bolshevik Government, 
which (according to official communiques) 
began to totter at its birth, and has con- 
tinued to totter until it has infected half 
the world with its congenital instability, 
it may carry on for a long while, if its 
opponents obligingly demonstrate at short 
intervals their inability to supplant it 
by something better. 



National Guilds — Their genesis — Their corruption 
by Fabian thought — The use and abuse of Com- 
mittees — The prerogatives of policy — The diminishing 
importance of " Labour " — Its lost opportunity — The 
site of the final struggle. 


Since neither Nationalisation nor the 
Capital Levy offers any sound basis on which 
to construct a policy for the betterment of 
society, it may be well to see what may 
be said of proposals which have attracted 
very considerable attention from some of 
the best brains of the Labour Movement 
— those involved in what are commonly 
known as National Guilds. 

At the outset it is necessary to make the 
sharpest possible distinction between the 
original philosophical idea which was the 
genesis of the Guild Movement, and which 
was explored by its progenitors of The 
New Age, and the superstructure built 
from political and Trade Union mechanism, 
which has been erected upon it. The vital, 
and probably immortal, germ of the Guild 
idea is its recognition of function in society 



as well as in the individual; and it is the 
writer's opinion, at any rate, that no sound 
society can exist which ignores this con- 
ception. But when we come to examine 
the proposals for incarnating this idea in the 
structure of the working world, it seems 
impossible to escape the conclusion that 
it has suffered severely at the hands of 
some of its converts, and that the path of 
development these proposals have pursued 
is a tangent to the firm world in which we 
live; which is globular. In consequence, 
they have left the solid ground of objective 
fact and have lost practical efficacy. 

For instance, while a comprehensive 
Trade Union or Guild is clearly indicated 
as a possible or even probable evolution 
from the Trust, it is far more likely, and 
even desirable, that it will be based on the 
cartel system than on, for instance, the 
Triple Alliance of Miners, Railwaymen, and 
Transport Workers. 

Once again let it be repeated, the primary 
objective of the industrial system is goods, 
not employment. Once let it be arranged 



that the distribution of goods is not the 
" reward '' of employment, and there is 
some chance that the scientific intellects 
of the industrial world will achieve the end 
to which all their efforts are bent — the 
replacement of human labour by energy 
drawn directly from the source of all terres- 
trial energy, the sun — an end thwarted not 
only by the insane profit-hunting of the 
super-productionist, but equally by the 
sabotage and indiscipline of the syndicalist. 

The idea that the direction of the tech- 
nical processes of a modern co-operative 
productive organisation can be carried 
on by a show of hands at a committee 
meeting of producers, or, alternatively, 
that appointments to the productive 
hierarchy should be made in this way, is 
pure delusion. 

Committees have their uses, and advisory 
committees in industry will become more 
and more general, and are of inestimable 
value to executive officials, but it is of the 
very essence of the best modern organisa- 
tion that responsibility and authority should 



go together and be definitely attached to 
some individual holding a specified office 
with specified duties for the execution 
of which, and for no other reason, he holds 
that office; the essence of which duty in 
most cases consists of making quick decisions 
on matters of fact. Anyone with experience 
of executive (not advisory) committees 
knows quite well that the decisions ob- 
tained from such a source, besides being 
relatively slow, are really the decisions of 
one man, generally possessed of political 
instinct in excess, and quite happy to share 
possible censure with half a dozen acces- 
sories before the fact; and it is far better to 
accept this as a fact, and to recognise it, 
than to pretend that there is something in- 
herently bad about human nature which 
requires continual ''policing/' 

Similarly, the appointment of individuals 
to executive positions, and their removal 
therefrom, is essentially a necessary pre- 
rogative of the originators of policy, not the 
administrators of process. The control of 
policy, as we have already seen, resides quite 



definitely with the controllers of credit, 
whether that credit is based on finance or 
a machine-gun; credit never resides in the 
function of labour, either '' by hand or 
brain," though it may reside in the control 
of labour. That is to say, to the extent 
that the withdrawal or employment of 
labour can stimulate either fear or desire, 
to that extent the control of labour is a basis 
of credit ; and as the machine progressively 
replaces the man in its importance as a 
purveyor of goods and services, so will 
the demand of the community on the one 
hand, or the control of the machine on the 
other, become progressively more important 
as bases of credit and origins of policy. 

A consideration of the foregoing argu- 
ments will no doubt be sufficient to indicate 
the source of the error into which much of 
the Guild Socialist movement has fallen: 
it has omitted entirely, in its proposals 
for the realisation of a sound ideal, to allow 
for the most important factor in modern 
civilisation — the unearned increment of 
association — and has in consequence left 



its benefits to be the sport of the financier, 
while agitating for a revolution which is 
stamped in advance with all the character- 
istics of a medieval tyranny. 

During the years 1914-1919 the British 
Labour Party as a whole had an opportunity, 
such as rarely occurs in history, so to change 
the trend of progress, both economic and 
political, that in a few years civilisation 
might have emerged from the nightmare 
of war into the placid sunlight of a liber- 
ated, creative, and revivified world. The 
great mass of honest, capable men and 
women, over the backs of whom its leaders 
had climbed to power, were inspired by a 
great enthusiasm towards a better age for 
all ; and the immense urgency of the demand 
for output, which the sabotage of war 
had created, gave to organised Labour a 
bargaining power which only a similar 
or greater war, involving, with its appalling 
miseries, fresh fields of production, can 
restore. But the opportunity was missed — • 
missed by the technical misdirection of the 
Trade Union officials and their Parliamen- 



tary spokesmen, who, while voicing the as- 
pirations of their constituents, were perhaps 
more concerned with poHtics as a career 
than with definite constructive action to- 
wards the practical improvement of society 
as a whole. As distinct from the pure 
Utopianist, determined to see nothing good 
in material changes unpreceded by a 
" change of heart," the " sane Labour 
leader '' naturally listened to any plan 
designed to consolidate and buttress official 
power, hence the vogue of Socialist-Admin- 
istrative schemes, now happily and rapidly 
waning. But the error went deeper. The 
Syndicalist idea of control by the workers 
naturally led to strikes for higher wages, 
rather than for lower prices. The revolt 
of the general public, while misdirected, 
was logical and inevitable; and the Labour 
Movement, as distinct from the aspirations 
of the great mass of individuals it mis- 
represents, is partly manoeuvred by its 
opponents and partly committed by the 
ineptitude of its ''leaders'' to the repre- 
sentation of an interest as purely sectional, 


and hardly less truly antisocial, than that 
involved in an organisation to keep up 
the price of, say, bread or houses. 

If there is one thing more certain in this 
respect than any other it is that men who 
know how to do things will not submit to be 
ruled in the details of the doing of them by 
men who do not know how, and, strange 
as it may seem at first sight, the control of 
society by the '' producers *' means just 
exactly that amongst other things. For 
instance, it is highly probable at this time 
that the production of armaments, in the 
broad sense of the word, is a determining 
factor in world politics ; and that is so because 
millions of men and women get their living, 
as the phrase goes, by working in armament 
factories. That is to say, the producer 
controls the consumer. If those millions of 
human beings were not dependent for the 
means of consumption on this particular 
form of production, it is highly probable 
that the armament business would languish, 
and numbers of people who understand 
what it is the world needs much more than 



armaments would have an opportunity of 
suggesting how to get it as well as a voice 
in determining a suitable personnel to 
that end. 

Now, in spite of the apparent lack of 
enthusiasm with which any attempt to 
examine the subject of credit and price 
control is apt to be received in the imme- 
diate present, there is no doubt whatever 
that its paramount importance will, within 
a very short time, be recognised, although 
perhaps not so quickly by British Labour 
as elsewhere. The real struggle is going 
to take place, not as to the necessity of these 
controls, but as to whether they shall he in 
the hands of the producer or the consumer. 
British artisans have become so obsessed 
with a sense of the power of organised 
Labour — a power which, always exag- 
gerated, is waning rapidly by misuse — that 
they are in real danger of playing straight 
into the hands of the enemy by exactly the 
same methods which have led the Russian 
workman out from the partial, because 
inefficient, tyranny of Czarist Russia into 



the scientific conscription of Labour now 
incorporated into the Workers' RepubHc, 
which is credibly reported to have converted 
to Bolshevism Mr. Henry Ford in America 
and numbers of our most distinguished 
industrialists in this country. 

Unselfish aspirations, good intentions, 
beautiful phrases — none of these by them- 
selves will affect the issue by so much as one 
hair's breadth. If the public of this or 
any other country is really desirous of once 
and for ever freeing itself from the power 
of the economic machine, and using the 
immense heritage which science and indus- 
try have placed at its disposal, it has to 
throw up and place in positions of executive 
authority men who are technicians in so 
broad a sense that they understand that 
the very essence of perfect technology is to 
devise mechanism to meet the requirements, 
the policy of those who appointed them. 
There are thousands of such men in every 
country disgusted, in their varying degree, 
with the policy to which their abilities have 
been prostituted; but so long as the super- 

85 G 


producer appoints and supports the man 
who deHvers the goods — i.e,, profits — while 
the pubHc elects and supports the man who 
only talks, whether in Parliament or in the 
Trade Union, just so long will the tail of 
production wag the consuming dog. There 
is no hope whatever in the hustings; but a 
modified credit-system could transform the 
world in five years. 



Summary of analysis of the Machine Age — Trust 
Capitalism essentially anti- public — And anti- demo- 
cratic —The nature of the coming State. 


The conclusions to be derived from a 
consideration of the conditions observed 
to exist in the modern economic and indus- 
trial systems may therefore be tabulated 
somewhat after this fashion : 

(i) The outstanding feature of the 
Machine Age is the increment of pro- 
duction obtainable through co-opera- 
tion and the employment of real capital. 

(2) The link which enables numbers 
of individuals to co-operate is Credit 
based on Capital — that is to say, a 
belief that, by making, with the aid 
of tools, certain articles which the 
maker does not himself want, he will 
obtain more easily and more exactly 
his desires in respect of goods and 
services which he does want, than by 


applying himself to their production 
directly. At the present time the real 
basis of credit is broader than ever 
before, but the psychological basis is 
failing, owing to the misuse of capital. 

(3) The material of which this link is 
fashioned we call money, which, what- 
ever form it may take, derives its 
value solely from the belief, the 
" credit,'' that it is an effective agent 
for the realisation of the proposition 
contained in (2). 

(4) The mobilisation and issue of 
this money, for productive purposes, 
rests primarily with the banks, which 
are not concerned directly with the 
maintenance of this co-operative rela- 
tion, but rather with the rapidity with 
which the credit units so mobilised 
and issued are restored to the financial 
system. This is not the fault of the 
banks, but of the public and of the 

(5) From (4) it follows that, where 
money is the inducement, the control 



of the policy of production — that is to 
say, the decision both as to what 
articles shall be produced and their 
quantity and quality — rests, not with 
the administration of productive enter- 
prises, hut as to its initiation with 
the hanks and others who finance their 
production, and as to its continuance 
with the price-makers — whose motive is 
in the very nature of things anti-public, 
since it aims at depriving, with the 
maximum rapidity, the individuals 
who comprise the public of the inde- 
pendence conferred upon them by the 
possession of purchasing-power. 

(6) The public, as individuals, can 
only acquire control of the policy of 
the economic and industrial system by 
acquiring control of credit-issue and 
price-making. The organ of credit- 
issue is the bank, and the meaning of 
price-making is credit- withdrawal. 

Now, there are probably very few serious, 
reasonably unbiased, and qualified students 



of these questions who would, after full 
consideration, be prepared to deny any of 
the foregoing propositions, but many such 
find it difficult to understand and agree 
with the contention advanced in the fore- 
going pages and in the previous volume 
(** Economic Democracy,'' Chapter IX. et 
seq.) that an essential postulate of a better 
state of things — i.e., public control of 
economic policy through public control of 
credit — is that ultimate-commodity prices 
should be less than costs; that an article 
used by an individual should be sold for less 
than the money it costs to produce. To any- 
one in this difficulty the following question 
may be helpful : // credit controls the policy 
of production, how can it he possible for the 
public to control credit and policy if all 
the credit necessary to induce production 
is restored to the banks from the public 
through the automatic agency of uncontrolled 
prices ? 

It is, of course, possible to control the 
initiation of any specified form of production 
by controlling credit-issue only, but, once 



started, there is nothing whatever to prevent 
an obsolete article from being produced and 
forced, by advertisement and monopoly, 
on a misguided public, long after a better, 
cheaper, and generally superior article is 
available, so long as the credit necessary 
to induce production — in common terms, 
the cost of production — is taken from the 
public automatically through the agency 
of prices. If, however, the entrepreneur, 
while subject to all the desirable features of 
free competition between establishments, 
involved by effective cost-keeping, is 
obliged, in order to compete at all, to come 
to some publicly controlled credit-bank 
at short intervals for the means to make 
up the difference between a price regulated 
(not fixed) by a fractional multiplier applied 
to all costs of production of articles sold 
to the individuals composing the public 
(as explained in Chapter X., " Economic 
Democracy "), then, and it seems probable 
only then, do we acquire a valid, flexible, 
active control, not only of the initiation, 
but of the development and modification 



of production, by the public acting in their 
interest as individuals. 

It will be understood that these con- 
siderations do not affect the vaHdity or 
otherwise of the basis on which it is con- 
tended that this fractional multiplier should 
rest — that has already been dealt with at 
some length ; it is merely intended to show 
here that, without some such arrangement 
which places the co-operative producer in 
the power of the consumer, instead of the 
exactly opposite condition which now 
obtains, effective democracy is pure moon- 
shine, and all progress is stultified. Any 
practical business man will know of cases — 
probably of dozens of cases — where pro- 
cesses and discoveries of immense value 
have been wilfully stifled because it did not 
suit producers to modify their product. 
There are ugly rumours about at this mo- 
ment of certain enormously valuable petrol 
substitutes cornered and quietly shelved 
by the oil interests — by no means the worst 
of the Trusts which enslave us. From 
every quarter come more or less authenti- 


cated stories of calculated waste and sabo- 
tage — Eastern-returned travellers gossiping 
of mountains of rotting blankets lining the 
Suez Canal, Australians of the millions of 
bushels of rat-eaten and mouldering wheat 
cumbering their stores. 

We do not acquire, by these suggested 
methods, control by the public, as such, 
of the processes of production — the '' how ** 
it shall be done. That is not the business 
of the public, as such, but of experts. 
But by controlling both credit-issue and 
price-making the public acquires control of 
policy with all its attributes — the effective 
appointment and removal of personnel, 
amongst others. The essential nature of a 
satisfactory modern co-operative State may 
be broadly expressed as consisting of a func- 
tionally aristocratic hierarchy of producers 
accredited by, and serving, a democracy of 
consumers. The business of producers is 
to produce; to take orders, not to give them; 
and the business of the public, as consumers, 
is not only to give orders, but to see that 
they are obeyed as to results, and to remove 



unsuitable or wilfully recalcitrant persons 
from the aristocracy of production to the 
democracy of consumption. 

No peace will ever settle on the dis- 
tracted earth until this matter has been 
fought to a finish, and it rests with the 
intelligence of those who are from time 
to time in a position to guide popular move- 
ments, whether a mere remnant of civilisa- 
tion will achieve the Golden Age awaiting 
the settlement, or whether a decisive verdict 
is close at hand. 



The production of Real Credit — Delusive account- 
ing — The limits of Financial Credit-issue — Present 
economic system based on currency — Coming system 
will be based on Real Credit — The fraudulent 
standard — Delivery is part of credit-basis — The 
fallacy of "National Poverty" — Increased effective 
demand necessary. 


There is another and somewhat more 
specious objection raised to the statement 
that the just price of an article for individual 
consumption is less than the cost price 
by the ratio of consumption-credit to 
production-credit; and that is a statement 
that production only very slightly exceeds 

It will be realised that this is a very 
specious statement, if we accept it for the 
moment as being true, and consider 
exactly what is implied. When a Blue 
book, or other mine of statistical and 
generally perverted information, asserts 
that the imports and exports of a country 
are thus and such, it intends to convey the 
impression that the aggregate price-values 
as shown on bills of lading, reach the figures 
given. That is to say, the '' balance of 


trade '' of any country, either as reflected 
in its exchange or by any other commercial 
test, is simply a matter of sales-management 
— you have only to make grand-pianos a 
necessary of life, corner grand-pianos, 
restrict the sale, and, presto ! half a 
dozen grand-pianos will balance the import 
of all the wheat and wool that Australia 
and the Argentine can send us. 

Exactly the same thing is true of values 
produced and consumed. The community, 
while producing, as one of its functions, 
both capital goods and ultimate products 
or consumption goods, only consumes, as a 
collection of individuals, the latter. But 
individuals in the aggregate must pay both 
for capital production and ultimate pro- 
ducts, whether consumed or not, under the 
present financial system, for the very simple 
reason that they are paid for, and there is 
no one else to pay for them. Also, as we 
know quite well that practically every 
business firm *' turns over '' the money 
employed in its business at least once, and 
generally several times a year, and that each 



complete aggregate '' turn-over '* means, 
broadly, that all costs incurred have been 
recovered from the public, we either have to 
believe that not only are the whole of the 
ultimate products covered by the period of 
turnover, consumed in that time, but 
also the whole of the machinery, buildings, 
small tools, etc., which is plainly ridiculous. 
It is, of course, obvious, after a little con- 
sideration, that what happens is that the 
consumption- values — i.e., prices retrieved 
from the consumer — contain all costs — i.e., 
credit issued to the consumer in the form 
of wages and salaries; and therefore must 
financially approximate to the money value 
of production. 

Now, because " production '* is, at present, 
the chief agency through which is circulated 
the purchasing-power necessary for dis- 
tribution, there is an immensely strong 
incentive to sabotage — the waste of work 
on the side both of the Capitalist and of 
Labour — and for this reason the consump- 
tion of the world is most unquestionably 
far higher than it ought to be. But even 



taking this into consideration, it must be 
obvious that the credit-value of production — 
the amount hy which the work of a community 
during a given period of time increases the 
correct estimate of the capacity of that com- 
munity, with its plant, culture, and labour, to 
deliver goods and services — is enormously in 
advance of the actual consumption. Every 
single telephone instrument installed, every 
improvement in transport, every new pro- 
cess for producing nitratic fertilisers, only 
to indicate the principle by a few trivial 
examples, clearly increases this real credit 
at compound interest. 

Financial credit, even now, is issued 
roughly against all forms of real credit. 
The only sane limit to the issue of credit for 
use as purchasing-power is the limit imposed 
hy ability to deliver the goods for which it 
forms an effective demand, providing that 
the community agrees to their manufacture. 

Consequently, if as the result of six 
months* work the capacity to deliver goods 
and services has been increased per unit 
of time, it would appear to be simply 

lOI H 


common sense, with the foregoing proviso, 
to distribute the means which make it 
possible to draw on this potential produc- 
tion, without forced export. 

When the Capitalist system takes back 
from the public the whole of the costs 
incurred in production, it takes back the 
whole of the financial credit, and the 
purchasing-power covering the period of 
activity in respect of which that credit 
was distributed, whereas the real credit 
of that period includes the overwhelmingly 
important unearned increment of asso- 
ciation during that period. To take the 
most elementary of examples: if we con- 
sider a factory, engaged only on one 
article, during the second six months of its 
first year of existence, it will probably 
increase its output very considerably be- 
yond that possible in the first six months. 

If, however, of the financial credit, or 
purchasing - power, which we distribute 
during the first six months we only take 
back in prices that portion represented 
by the ratio of actual consumption to 



potential production, we can, if we so 
desire, produce up to the limit of our capacity 
during the second six months in the assur- 
ance that an effective demand awaits us. 

It is vitally necessary to be clear as to 
the difference between what actually takes 
place under an economic system based, 
essentially, on currency, and the position 
which would result from the modification 
to the financial system which we are dis- 
cussing ; which would be based, essentially, 
on the economic capacity of society to 
achieve its desires. Where metallic gold 
is the ultimate basis of value, and therefore 
the ultimate currency, and all credit-issues 
are made on the assumed necessity of some 
theoretical or empirical relationship be- 
tween the amount of gold in the banks 
and the total credit-issues, and we assume 
that there is an average period over which 
credits operate, and that credits are the 
means of financing production, then total 
credits, multiplied by average time, are a 
measure of the rate of production. It has 
been pointed out by Mr. Arthur Kitson, 



and others, that since this credit structure 
is based on gold, which bears no conceivable 
relation in quantity to any human require- 
ment for goods and services, gold production 
exercises a totally disproportionate effect 
on the mechanism of prices and credit. 
But the difficulty goes much deeper than 
that. Not only does the gold basis of the 
present financial system shift, but the ratio 
of the credits erected on it also shifts — 
sometimes violently. This is, of course, due 
to the vital fact that the public even under a 
gold basis of credit can utterly destroy the whole 
credit structure by demanding gold in payment 
of their cheques on the banks, because the basis 
of present cash credits is that they are 
convertible into currency on demand, and 
there is, of course, not a tithe of the gold 
necessary to cash them. Engineered, no 
of doubt, to a large extent by the enemies 
this country, that is what nearly happened 
in August, 1914 (and would always happen 
under similar conditions), with the result 
that in order to defeat the manoeuvre, the 
financial system was shifted from a gold 


to a paper credit basis in a few weeks' time, 
never, let us hope, to return to so fertile a 
source of misery. 

But although the gold basis has gone, 
the simulacrum of it still lingers in the 
shape of a credit system based on an un- 
regulated paper currency, with the result 
that a sort of Druids* dance of credit-issue, 
rising prices, currency stringency, currency 
issue, more credit based on more currency, 
goes on, the only possible redeeming feature 
of which is to take the whole cycle right 
away from the fetish of gold. Apart from 
this one point, everyone suffers except 
those whose business it is, in the most 
literal sense of the words, to make money. 
So much for the conditions brought about 
by a financial system which attempts to 
base its credits on the currency, and yet 
allows its prices to rise with both. The 
alternative shifts the credit basis still 

We have already seen that the only 
possible basis of real credit is a belief, 
amounting to knowledge, in the correctness 


of the credit-estimate of a society, with 
all its resources, to deliver goods and services 
at a certain rate. If we make this basis our 
financial basis, then the credit-structure 
erected on it can only be destroyed by 
social suicide — by the refusal of the com- 
munity to function. Now, one of the com- 
ponents of the capacity of a society to 
deliver goods and services is the existence 
of an effective demand for those goods and 
services. It is not the very slightest use, 
under existing conditions, that there are 
thousands of most excellent houses vacant 
in this country, when the cost of living in 
them totally exceeds the effective financial 
demand of the individuals who would like 
to live in them. . The houses are there, 
and the people are there, but the delivery 
does not take place. The business of a 
modern and effective financial system is to 
issue credit to the consumer y up to the limit 
of the productive capacity of the producer, 
so that either the consumers* real demand 
is satiated, or the producers' capacity is 
exhausted, whichever happens first. 


This can obviously be done by making 
issues of purchasing-power to cover the 
whole estimated productive capacity, and 
taking it back to the extent that this capa- 
city is diminished from any cause whatever, 
a state of affairs which rapidly results in 
making everyone '' rich " in the current 
sense of the term; which, it should be clearly 
borne in mind, does not at all mean that 
an individual's real consumption is large 
— very often quite the contrary — but that 
the individual in question has the mechan- 
ism at hand by which to obtain what he does 

It is, of course, generally argued that 
there is not enough wealth to go round, 
and all sorts of absurd and misleading 
statistics have been evolved to prove 
that if all the accumulated wealth of 
the nation were evenly divided up, the 
average wealth per head would only amount 
to a very small sum, say ^^50. The right 
understanding of exactly where this fallacy 
arises is probably one of the shortest cuts 
to an understanding of the whole position, 


which involves a recognition of the difference 
between claims on capital, and adminis- 
trative ownership of capital. 

Financial wealth can only be placed on a 
solid basis by selling something to the 
public — it is, for instance, no use owning 
a factory only suitable for the manufacture 
of high-explosive shells if the public taste 
for high-explosive shells has completely 

But farther than that, even if the public 
wants nothing but high-explosive shells in 
the largest quantities (which, from the 
behaviour of its '' representatives,*' seems 
highly probable), it would be necessary 
that an effective demand — that is to say, 
a demand backed by '' money '* — should be 
forthcoming from the public. Now, the 
value of o^ir hypothetical shell factory would 
vary from zero when there is no effective de- 
mand, to infinity, when there is no demand for 
anything else, and no other means of supply. 
That is to say, to drop the metaphor, the 
capital value of the plant of civilisation 
is as much dependent for its value on the 


existence of an effective demand for its 
product as it is on its capacity to meet that 
demand. If this is grasped, it will be clear 
that the distribution of the credit-capital, 
the power to draw on the resources of real 
capital (the leverage of civilisation on the 
work of society) increases the value of 
capital by the ratio which the new output 
bears to the old output, a proposition which 
clearly has nothing to do with the ad- 
ministration of the plant itself. The only 
way, therefore, to get that increased pro- 
duction of the things which individuals 
really want, which as here defined everyone 
may agree is desirable, is to get increased 
effective demand, which, as we have seen, 
we do not get under the present financial 
and price system by any general increase in 



Fitness the qualification for executive authority — 
The producers not the owners of the product — Solar 
energy the great producer — The method of policy- 
control — The Producers' Bank — Its operation — The 
consumer -interest in it — The community -com- 
ponent of credit — How it would operate in the coal 
industry— The " Idle Rich." 


We may sum up the foregoing arguments 
by saying, firstly, that the only claim which 
any individual or collection of individuals 
has to operate and administer the plant of 
society is that they are the fittest persons 
available for the purpose. This can only 
be the case where there is natural attraction 
between a man and his work, because no 
man or woman ever excelled at any pursuit 
for which they entertained a dislike when 
in competition with numbers of persons who 
added to equal capacity, an affinity for 
their occupation. Secondly, that as the 
operators, though vital to the result, are 
only one of the factors contributing to the 
result and by no means the most difficult 
factor to replace, they are not, as operators, 
concerned with either what is produced, 
who produces it, or who gets it when it is 



produced : that is the business of those who 
provide the reason, the inducement to 
produce — the individuals who collectively 
compose society. 

The absolutely fundamental reason for 
the existence of modern co-operative 
collective production is the belief of indivi- 
duals that their interest is best so served. 
When or if that belief fails, as it is failing 
now, either it must be restored or collective 
production will fail, as it failed in Russia. 
Now, there is no reasonable ground what- 
ever for suggesting that modern productive 
methods are not incomparably more effi- 
cient than individualistic hand production. 
It is not meant to say by this that the results 
of the modern industrial system are at 
present more satisfactory than those pos- 
sible under medievalism, but that they 
could be. The essential factor which places 
the matter beyond doubt is the introduc- 
tion of natural, solar energy into the work 
of the world, through the agency of coal, 
water-power, internal combustion engines, 
and other agencies of energy-conversion. 


It is, therefore, not the operation of the 
plant but the purposes for which it is 
operated which are chiefly at fault, and it 
is over these purposes, the policy of pro- 
duction, that we are chiefly concerned to 
acquire control. Imagine a bank formed 
by the employees of one of the great pro- 
ducing industries, by the simple process of 
hiring a building and engaging a trained 
staff, and that all the wages and salaries 
of the operating side of this industry were 
paid through this bank — an operation of 
sufficient magnitude to place an ordinary 
banking business on a firm foundation at 
once. Such a bank, backed by the econo- 
mic power of a Trade Union on which it 
might rely, might claim with success that, 
as representing one of the factors of pro- 
duction, and consequently one of the factors 
in the credit attaching to production, it 
should issue a considerable and agreed pro- 
portion of the flow of purchasing-power 
which forms the vehicle of that credit. This 
would take two forms — the provision of 
short-term loans for current business, and of 


irredeemable loans for capital expansion. 
Now, it should be clear from what has been 
said that such a bank would control policy 
in the proportion that its financing opera- 
tions control the productive organisations 
obliged to come to it for money. 

Imagine each client of this bank to have 
one share and one vote at a shareholders' 
meeting, the object of such meetings being 
to afford an opportunity to discuss the 
action taken by the bank's officials in their 
use of the bank's financing powers, not 
to discuss the bank's own financial success, 
for such a bank as is suggested should pay 
no dividend. It should be observed, and it 
is vital to a grasp of the principle involved, 
that this bank is solely concerned, like all 
other finance, with economic policy, not 
with the administration of economic 
process. Consider what happens in the 
relations between these financing banks 
and the productive organisations or com- 
panies which they will admittedly control. 
The management of a producing company, 
with the aid of its expert technical know- 


ledge, will initiate a programme of produc- 
tion, and will submit this programme with 
estimates of its cost to the banks. The 
banks are not concerned with any questions 
of either practicability, method of achieve- 
ment, or any other questions dependent 
on technical knowledge — they are simply 
concerned to give a quick answer to a 
plain question: '' Will you pledge the com- 
munity to pay so much for so many articles, 
delivered at such a rate of delivery, com- 
mencing on so-and-so date V If the banks 
say yes, they pledge the credit of the com- 
munity to that extent exactly as they do, 
uncontrolled, at present, because each issue 
of credit dilutes the purchasing-power of 
every existing unit of purchasing-power, 
per se, a dilution which is only cancelled by 
the actual cancellation of that purchasing- 
power. If cancellation takes place by 
the recovery of this credit from the public 
through the agency of prices, then the public 
interest is to keep prices low, while, under 
existing conditions, the producers' interest 
is to keep them high. Now, since our 



imaginary bank is founded in the first place 
on a Trade Union, which is a union of 
producers, it is clearly vital to know whether 
its shareholders will support a consumers* 
policy or what seems superficially a pro- 
ducers' policy. 

Let us abandon at once any sentimental 
ideas which are based on ''a change of 
heart.'* What we want to know is, '' How 
will a body of men whose fundamental 
reason for association is goods, not work, 
act under certain specified conditions, which 
we want to arrange in the general interest ?** 

Consider two alternative policies to be 
before, say, a miners* bank. One raises 
the price of coal while raising the remunera- 
tion of the miners, the other lowers the price 
of coal. The miners are producers of coal, 
but they are consumers of forty-nine other 
articles into which the cost of coal enters, 
so that while the miners would receive 
more for their product, they would pay 
more for all other products. The question 
we have to answer is, '' On which side does 
their advantage lie ?** and the solution is 
117 I 


concerned with the dynamic nature of 
industry — the constant movement of all 
the factors in it. 

Remembering that all money, whether 
for wages or salaries, paid to induce people 
to produce is an advance of financial credit 
in respect of future production, we can see 
that if this advance had no effect on present 
prices the miners would benefit at the ex- 
pense of the public. But since, under 
existing conditions, this additional pur- 
chasing-power released against the existing 
stock of goods raises their price at once 
(just as we know that building a new rail- 
way bridge will raise the price of bacon at 
the nearest village shop), the advantage is 
very temporary, and is absolutely reversed 
in the case of the individual who has any 
stock of money. 

But infinitely more important is the real 
credit aspect which is also essentially 
dynamic. When a miner raises coal, which 
is a vehicle of solar energy, he increases the 
real capital of the community, its increased 
capacity to deliver goods and services, out of 


all proportion to the '* cost '* of raising it. 
Consequently, as a consumer, he should 
receive goods at some future date much 
cheaper as a result of raising this coal — 
i.e., in order to get value for his money the 
price of the articles he buys with it must 
be diminished by the credit -value of the 
work he does. Anyone familiar with the 
mathematical conception of an acceleration 
will grasp the point without difficulty. 

When coal is raised in the community, 
the credit of the community is increased, 
not by the cost of raising the coal — i.e., the 
money value of the work done — but by the 
increased capacity of the community to 
deliver goods and services of the desired 
variety to individuals composing the com- 
munity ; and this credit- value is dependent 
on the use made of the coal when it is 
raised, and may be out of all proportion to 
the cost of raising it. The chief component 
in this credit- value is supplied by the com- 
munity itself. There is no useful purpose 
served by raising coal in the middle of the 
Sahara unless you can either get it to the 


community or popularise the Sahara as a 
manufacturing or social centre. There- 
fore, remembering that the cost in wages 
and salaries is simply a financial credit- 
issue, no matter where it comes from — 
i.e., just as the banker advances credit to the 
employer, so does the employer advance 
credit against future production to the 
employee — it is obvious that as a major 
part of the real credit involved in the opera- 
tion is dependent on the use made of the 
coal by the community, it is fundamentally 
impossible for the cost, which is incurred 
prior to use, to be the equivalent of this credit, 
— i.e., no private employer could ever pay 
such wages, and recoup them in prices 
from the public, as would represent an 
issue of purchasing-power representing 
the credit created by the proper use of the 
coal. In any such transaction, for it to be 
effective as a distributing agency, there 
must be an issue of purchasing-power from 
some organ representing the creation of credit 
by the mere presence of the community — 
i.e., the total purchasing-power should ex- 



ceed the cost to the extent that the total 
net capacity of society to achieve its desires 
is enhanced by the operation in question. 
Overdrafts and similar transactions by banks 
represent, to a limited degree, such an issue, 
and without them production is impossible. 
This is the same thing as to say that price 
to an ultimate consumer should be that 
proportion of cost which is represented by 
the ratio of credit-destruction to credit- 
production, and as the credit-production 
is a function of the community, it is quite 
clear that the credit production and de- 
struction must be generalised — you cannot 
say that a ton of coal raised will represent 
so much credit-consumption when it is 
burnt, because some obscure professor may 
devise a method of using coal which at any 
moment may double its usefulness. The 
vital and somewhat unfamiliar element 
which it is necessary to bear steadily in 
mind in the examination of this subject is 
its dynamic character — that all the time 
there is a ceaseless flow of credit- production 
arising out of countless moral, intellectual, 



and material factors, and a similar but 
fundamentally smaller drain on this pro- 
duction which can be described as depre- 
ciation, and the real general ratio of the 
generalised income to the generalised 
expenditure must take account of all these 
factors. When, as at present, a whole 
civilisation is profoundly dissatisfied with 
its economic system, an element of deprecia- 
tion is introduced which has far more 
influence on real credit than the most 
colossal destruction of material property by 
fire or otherwise. 

If it can be made clear to the individuals 
whom we are placing by hypothesis in 
control of the policy of the mining industry 
that each of them, as individuals, benefits 
by an increase of the ratio of credit-produc- 
tion to credit-consumption, we shall bring 
individual interest plainly into line with 
the general interest, and so, apart from 
other factors, enormously expand real 

The one aspect of the economic system 
which is admittedly and clearly of interest 


to all individuals is price, and if, therefore, 
the miners can affect general prices in 
favour of the consumer without injuring 
themselves, we can rely on them as reason- 
able human beings to use their power to 
further such a consummation. Let us 
suppose the price of all commodities, in- 
cluding coal, bought for beneficial use 
by an individual consumer, to be equal 
to the cost of production multiplied by a 
fraction representing credit-consumption 
divided by credit-production, but that the 
price of coal bought for further production 
to be equal to cost simply ; then the miners' 
clear interest as consumers is to create as 
much credit as possible for a minimum 
cost of production, because the cost of copI 
goes into the price of everything else bought, 
and these prices are only lowered to the 
consumer by the creation of real credit 
dependent, inter alia, on the use made of 
the coal. In everyday language, then, 
such a control as we are suggesting would 
operate towards the raising of the maximum 
amount of coal, at the minimum cost per 



ton, up to a limit where, in the judgment 
of the pubHc acting through their expert 
officials in the banks, the credit-production 
per unit of coal raised was a maximum. 
After this point difficulties would be placed 
in the way of further coal production, and 
the man-hours of labour absorbed by the 
mining industry would begin to decrease 
and the relation of credit-production to 
cost would increase — i.e., the industry 
would produce the same amount of real 
purchasing-power for distribution amongst 
its members through the agency of dividends 
with less work, wages, and salaries. It will 
at once be said by the dogmatic Socialist: 
*' Yes, we thought it would turn out that 
the idle rich would benefit!" He is quite 
right, but let us see exactly who are going 
to be the '' idle " rich. 

The bank we are discussing, let it be 
clearly borne in mind, is not a mining 
company, it is a bank which we postulate 
shall finance in increasing proportion a 
group of mining companies, and be con- 
trolled and exist in the interest of, in the 


first place, those actively engaged in the 
mining industry. Now, by its issues of 
credit to these producing companies, it 
would eventually become possessed of 
most of their shares, which it would hold 
for the benefit of its depositors. Assuming 
a standard rate of dividend and an increas- 
ing number of shares due to successive 
" capitalisation,'' the depositors of this 
bank would be the beneficiaries equally of 
all the increasing number of shares held by 
the bank; so that as improvements in 
process displaced men from industry the 
purchasing - power they had helped to 
create would be available in the form of 
dividends. The mining industry would 
thus not have to consider the provision 
of employment — its sole preoccupation 
would be the delivery of coal in the right 
quantity to the right order — the order of the 
public, acting on the best advice available. 
Those persons whose aptitude for the 
work was least would be displaced from 
the industry first ; and in the earlier stages 
of the new order, the desire for remunera- 


tion in addition to that provided by their 
dividends, and in the later stages, the 
necessity to find an outlet for their creative 
activity, would drive such persons to seek 
fresh fields of usefulness — a process of 
readjustment clearly tending to the very 
highest efficiency in the broadest sense, 
that resulting from the increasing suitability 
of individual and employment. 



The measurement of Credit-production — What is 
"capitalisation"? — The growth of wealth — True 
Price — The sources of statistics. 


It will no doubt occur to numbers of persons 
who on consideration of the foregoing 
arguments might find themselves in general 
agreement with them that the measurement 
of so apparently indefinite a factor as 
credit-production would present formidable 
difficulty. So far from this being the case, 
it is an operation which forms the basis of 
the whole activity of finance applied to 
industry at the present time, and the 
mechanism exists to enable the new basis 
of credit — the useful (to human beings as 
such) productive capacity of society — to 
replace the present basis of credit — i.e., 
currency — without the very slightest shock 
either to industry or to society, but with a 
steady and rapid appreciation both of the 
amenities of life and of the efficiency of 
industrial processes. 



The key to the problem Hes in control, 
as the National Guilds propaganda has 
previously been at pains to point out, 
without quite realising where control was 
resident. That element of the production 
system, which is loosely and erroneously 
referred to as being its ^* capitalisation,'' 
is its credit, and each increase in capitalisa- 
tion is made on the assumption that the 
increase will pay a dividend — i.e., represents 
increased capacity to deliver something. 
Now, because the control of this increase, 
through the agency of finance and credit- 
issue, is in the hands of persons whose 
objective is not goods but money, this 
financial increase is not a reflection of an 
increase in potential capacity to deliver 
useful goods and services, but merely, as 
we have just said, in the potential capacity 
to deliver money; but if the control 
of capital issues were in the hands 
of the consumer, then ex hypothesi a 
'' capital " {i.e., credit) issue would be 
a measure of increased capacity to de- 
liver goods and services of the descrip- 


tion required by those in control of 

In this latter case the ratio of real credit- 
production to credit-consumption would be 
expressible in financial terms, and would be 
equal to: 

"Capital" {i.e., appreciation) issues per annum + 
credit-issues {i.e., cost of goods produced per annum) 

Depreciation + cost of goods consumed per annum 

Once again it should be noticed that all 
the symbols in the preceding expression 
denote rates. 

It will, of course, be understood that no 
absolute unit of measure of value is either 
possible or needful; it is, however, the popu- 
lar delusion that a gold or other standard is 
an absolute measure of value which has 
obscured the economic problem for so 
long. The only possible standard which can 
be appUed with accuracy to the measure- 
ment of economic values is that of ratio, 
a standard which does not require that we 
postulate anything at all about the unit 
used to establish the ratio, except that it is 


the same unit. To readers who are famiUar 
with the mathematical hypothesis known 
as the theory of relativity, the basis of 
which may be quite simply expressed in the 
statement that it is impossible by means 
of physical measurements to determine the 
absolute velocity of a body through space, 
certain analogies will no doubt present 
themselves. For the average person, not 
particularly interested in such matters, 
no difficulty arises in grasping what is 
meant by '' ten miles per hour,*' even though 
he cannot conceive of '^ a mile *' as 
distinct from '' a mile long.*' 
When, therefore, we say that : 

cost of ultimate products con- 
_ sumed (/) + depreciation of real 
True Price (in £) capital in £, 
« cost (in £) X 

credit created (in £} + cost of 

total production {£), 

we do not require to know anything about 
the properties of the pound sterling; we 
do not, for instance, require to know what 
is the absolute quantity of labour for which 


it is a '' just '* remuneration, and still less 
is it a matter of the slightest interest how 
much gold it represents. 

We are simply saying in effect: '' Credit, 
convertible into money, is a correct estimate 
of the capacity of society with its plant, 
culture, organisation, and moral, to deliver 
goods and services desired by individuals. 
Whatever unit we adopt for it, the number 
of these units held by the individuals who 
collectively compose society must be such 
that by surrendering these units they will 
receive in exchange all the goods and services 
which society can possibly deliver. As 
society's capacity to deliver goods and 
services is increased by the use of plant and 
still more by scientific progress, and de- 
creased by the production, maintenance, 
or depreciation of it, we can issue credit, 
in costs, at a greater rate than the rate at 
which we take it back through prices of 
ultimate products, if capacity to supply 
individuals exceeds desire. This it can 
always be made to do, by ensuring that the 
production of capital goods is secondary 


to a sufficient production of ultimate 
products, and their delivery to individuals." 
It will be seen, therefore, that we have 
every type of information required to fix 
the ratio we require at our disposal at any 
moment. The loan credit accounts of the 
banks, plus the ways and means and note 
and bond issues of the Treasury, plus the 
increase in capitalisation of productive 
organisations, roughly represent credit 
creation; cost of production is obtainable 
from the *' factory '' cost accounts, includ- 
ing now agricultural production accounts; 
the quantity and consequently the collective 
cost of articles bought by {i.e., delivered to) 
the public is available through such de- 
partments as the Ministry of Food, the 
Board of Inland Revenue, the Board of 
Trade, etc. In order to transform the 
measure of financial credit which these 
figures would give us into a measure of 
real credit, only two things are required: 
first, that control of credit-issue shall be in 
the hands of the consumer, so that produc- 
tion is moulded to his needs; and, secondly, 
133 K 


that the number of credit units in the 
hands of the pubhc shall be that necessary 
at any moment to buy the whole possible 
output of society, both of which premises 
are eventually met by the arrangements 
previously described. That they are not 
met by the existing economic system is self- 
evident on a consideration of, say, the 
relative amount of expenditure during the 
last ten years on factories, as compared with 
that on houses; and on the other hand, 
the utter insolvency of the British banking 
system during the few days immediately 
subsequent to the outbreak of war with 



Finance as a creator of things — The producer-credit 
school — A form of Syndicalism — The tyranny of 
" work " again — Analysis of producer-credit — Certain 
rise of prices — And failure — Consumer-control the 
only way to free producer-initiative — The world- 
conspiracy — The end. 


In a previous book ('' Economic Demo- 
cracy ") it was emphasised that no financial 
system in itself could affect concrete facts, 
and this statement may be carried a little 
farther by saying that what such a system 
can affect, is the psychology by which 
concrete facts are eventually materialised. 
For instance, it cannot be said with accuracy 
that the currency credit system actually 
wastes energy; but it is just as certain as 
anything can possibly be certain that the 
psychology of sabotage, which is the 
apotheosis of waste, is the direct outcome 
of the concentrated control of credit and of 
almost nothing else, a concentration result- 
ing from the currency basis of credit. 

Though the foregoing distinction may 

appear to savour of hair-splitting, it is 

nevertheless of vital importance, as a 

consideration of the proposals of what 



may be termed the producer-credit-control 
school, well represented by Mr. Arthur 
Kitson, will make clear. 

Mr. Kitson has done most valuable 
service to a better industrial society both by 
courageously attacking the gold-standard 
fraud, and more generally by directing 
the attention of, firstly, manufacturers, 
and latterly, the general public, to the 
overwhelming importance of the money 
problem. With the destructive portion of 
his propaganda it is on the whole im- 
possible for any fair-minded individual to 
disagree, and it is a thousand pities that 
anyone still under the dominion of the 
'* Employer v. Labour " theory of industrial 
unrest (if there be any such) should fail to 
make himself acquainted with the helpless- 
ness of the so-called capitalist when faced 
with an arbitrary restriction of credit 
by one of the groups controlling it. But 
it is interesting to notice how the obsession 
of " work for its own sake " has held this 
school of thought. To its members produc- 
tion, any sort of production which " makes 


money/' is wealth, and you cannot have 
too much of it ; and, seeing quite accurately 
that their constructive proposals would, 
if carried out, enormously increase ''em- 
ployment," it is clear that no misgiving 
alloys their vision of an earth packed solid 
with the most modern and highly efficient 
factories, pouring out massed production 
into limitless space. 

For the benefit of those who may be 
unfamiliar with the details of the proposals 
put forward by this group, they may be 
briefly summarised as providing for the 
discounting of bills of exchange, on demand 
and as of right, by banks, in favour of 
manufacturers, and the retention of the 
Treasury note and its expansion in quantity 
of issue to meet currency demands. Where, 
of course, such a scheme is an immense 
advance on present financial methods is 
that it makes the producer independent 
of the financier, because it gives him con- 
trol of credit-issue. But it also makes him 
independent of the public, because it leaves 
him in control of prices, which are the nega- 


tive aspect of credit. The manufacturer 
would then be absolute lord of the earth, 
since he would have the whole credit system 
in his hands; in fact, it is only in mechanism 
that producer-control of credit differs from 
the most thoroughgoing Syndicalism. It 
may be said that this is mere assertion, but 
an analysis of the sequence of events will 
serve to demonstrate the contention. 

A manufacturer under such conditions 
would obtain an order for goods from a 
source having effective demand — i.e., the 
money to pay for them. He would draw 
a bill on his customer for payment of the 
whole or part of the sum in, say, three 
months, and the customer would accept it. 
The manufacturer would take this bill to the 
bank and the bank would automatically 
treat it, less a commission, as money — i.e., 
would give him an overdraft (a creation 
of credit) for that amount or some recog- 
nised fraction of it. This new purchasing- 
power would be effective in the market 
before the goods, even if these were for ulti- 
mate consumption. If the goods were 


intermediate products they would never 
become effective as such in the individual 
consumer's market. Prices under such 
conditions would be equal to: 

Purchasing-power ex- (capital production + 

ultimate production) 

Consumable goods 

and we should enter into the manufacturers' 
paradise and the consumers' purgatory — 
an era of constantly soaring prices and 
continuous depreciation of currency. 

Now, without in the very least aspersing 
the motives of the progenitors of such a 
programme, it is quite possible that they 
regard such an outcome with equanimity. 
It is quite possible and even sensible to hope 
that at any rate there would be more goods 
to go round, but such a hope would be 
based on only a superficial comprehension 
of the facts. More and more under the 
struggle for purchasing-power which would 
be intensified by such arrangements, the 
great masses of mankind would be employed 
in making things they did not want and 
could not use, in order to earn money to 


meet the constant rise in prices of articles 
which they do want and must use, and as 
a result the system would create quite 
inevitably a psychology of unrest: no 
wage rates would be stable and no leisure 
would be possible. 

It is not usually wise to prophesy in 
terms of time, but in this case it is safe to 
say that, even if such a policy could be 
inaugurated, it could not last three years. 
Passing rapidly through a period of feverish 
activity and excessive capital and export 
production, a position would be reached in 
which misdirection of production and actual 
restriction of output of consumable goods 
would provoke either war, or absolute revolt, 
active or passive, with the result that co- 
operative production would fall to zero, and 
either a military despotism or a reversion to 
comparative barbarism would supervene. 

Let it be emphasised once again that the 
root of this difficulty is fundamental — it 
lies in assuming that the individual should 
serve industry rather than that industry 
should serve the individual. There is no 


suggestion intended in the foregoing pages 
that any restriction whatever should be 
placed in the way of anyone who wishes 
to make a new machine or devise a new 
process, or that he should be hindered in so 
doing — very much to the contrary. The 
materialisation of the proposals for con- 
sumer-control of credit, outlined in the 
foregoing pages, would make it far easier 
than it is now, to experiment with any idea, 
however apparently wild it might appear 
at first sight. What they would prevent 
is the manufacture for sale, at the expense 
of the public, of armaments, machinery, 
factories, '' luxuries," shoddy articles, etc., 
without the public as individuals having 
any opportunity to express an opinion as to 
whether such articles are or are not a fit 
object on which to expend the capacity 
of the community to deliver goods and 
services — i.e., its credit. 

In other words, and more concretely, 

persons who wished to avail themselves 

of the facilities which enable them to so use 

the public credit as to sell ** below cost " 



would only be able to do so after obtaining 
the necessary decision that their product 
is in the public interest. No definition of 
the public interest is either necessary or 
desirable — it is quite sufficient that public 
agreement is obtained in the matter without 
depriving minorities of the opportunity 
of proving the majority wrong. 

It will be observed that there is no conflict 
of opinion between the producer-control 
and the consumer-control ideas of credit- 
issue as to the fact that an enormously 
increased use of credit facilities is the only 
radical solution of the present difficulties; 
and it is a curious phenomenon that large 
numbers of intelligent people, who can see 
this quite plainly, cannot see that it is just 
as feasible to issue this credit to the con- 
sumer by selling *' below cost " as it is to issue 
it to the producer by anticipating payment. 
In both cases it is public credit which is 
used, but in the first place the credit is 
issued with the goods instead of in advance 
of unspecified production. The public is 
coextensive with the consumer, and while 


it is quite possible that it is, in a very broad 
sense, coextensive with the producer, we 
shall only arrive at that conclusion when 
we refuse to allow financiers on the one hand 
and Labour fanatics on the other, to arro- 
gate to themselves the right to define 
production as something having an imme- 
diate money value. 

And so we arrive at the same position as 
that reached in the consideration of various 
Socialistic proposals — we are confronted 
by the fundamental alternatives of freedom 
and authority. But it should be possible, 
if the previous pages have conveyed the 
intention of their writer, to see that these are 
not necessarily alternatives at all — they 
are policies each fundamentally '* right " 
on its own plane of action. Self-expression 
of the individual is not only the certain 
eventual outcome of these present discon- 
tents — it is the only outcome which will 
make possible a perfect voluntary discipline 
in execution based on a faith amounting to 
knowledge that thereby each private in the 
human army is fighting the fight which 


concerns every man — freedom of judgment, 
movement, influence, and work. 

Because the material existence of human- 
ity has a basis of food, clothes, and shelter, 
a threat to these things is no less menacing 
a threat to freedom than that offered by a 
machine-gun, and far more insidious. No 
cool observer of world movements at this 
time can doubt that, whether, as some 
would have us believe, there is an active, 
conscious conspiracy to enslave the world, 
or whether, as is arguable, only blind 
forces are at work to the same end, is a 
question immaterial to the patent fact 
that the danger of such a tyranny is real 
and instant. Parties which would appear 
superficially to be separated by aims 
utterly divergent, such as, let us say, the 
German military party, and the Fabian 
section of the British Labour Party, are 
found on close analysis to have identical 
objectives — the domination of a system 
over all effective individual dissent. In 
each case the steps to the achievement 
of the end consist in depriving the individual 


of economic independence either by vesting 
physical control in the State (conscription) 
or by *' Nationalising " through grinding 
taxation or otherwise the means of produc- 
tion, and abolishing all purchasing-power 
not issued, on terms, by the State. 

The projected personnel, of course, varies : 
some sections prefer the dictatorship of 
the Kaiser; some that of M. Trotsky; some 
that of, say, a Ministry of Transport ; but a 
dictatorship of some sort or other seems to 
be the aim of each. 

Against this terror mere physical force 
is powerless, itself it leads to that which it 
would destroy. But, nevertheless, there is 
a weapon to hand — that faith, that credit, 
based on the unity-in-diversity of human 
needs, which in sober truth has moved 
mountains; without which the Panama 
Canal would never have been cut or the 
St. Lawrence spanned. Into the temple 
of this faith the money-changers have 
entered; and only when they have been cast 
out shall we have peace. 







[The following exemplary Scheme, drawn up for 
special application to the Mining Industry, is designed 
to enable a transition to be effected from the present 
state of industrial chaos to a state of economic 
democracy, with the minimum amount of friction and 
the maximum results in the general well-being. An 
explanatory commentary on the Scheme, clause by 
clause, appears below.] 



(i) For the purpose of efficient opera- 
tion each geological mining area shall be 
considered as autonomous administra- 

(2) In each of these areas a branch of a 
Bank, to be formed by the M.F.G.B., 
shall be established, hereinafter referred 
to as the Producers* Bank. The Govern- 
ment shall recognise this Bank as an integral 
part of the mining industry regarded as a 
producer of wealth, and representing its 
credit. It shall ensure its affiliation with 
the Clearing House. 

(3) The shareholders of the Bank shall 
consist of all persons engaged in the Mining 
Industry, ex-officio, whose accounts are 
kept by the Bank. Each shareholder shall 
be entitled to one vote at a shareholders' 



(4) The Bank as such shall pay no 

(5) The Capital already invested in the 
Mining properties and plant shall be entitled 
to a fixed return of, say, 6 per cent., and, to- 
gether with all fresh Capital, shall continue 
to carry with it all the ordinary privileges of 
Capital administration other than Price- 
fixing. Depreciation shall be set against 

(6) The Boards of Directors shall make 
all payments of wages and salaries direct 
to the Producers' Bank in bulk. 

(7) In the case of a reduction in cost 
of working, one half of such reduction 
shall be dealt with in the National Credit 
Account, one quarter shall be credited to 
the Colliery owners, and one quarter to the 
Producers' Bank. 

(8) From the setting to work of the 
Producers' Bank all subsequent expenditure 
on capital account shall be financed jointly 
by the Colliery owners and the Producers' 
Bank, in the ratio which the total dividends 
bear to the total wages and salaries. The 

149 L 


benefits of such financing done by the 
Producers' Bank shall accrue to the de- 


(i) The Government shall require from 
the Colliery owners a quarterly (half- 
yearly or yearly) statement, properly kept 
and audited, of the cost of production, in- 
cluding all dividends and bonuses. 

(2) On the basis of this ascertained Cost, 
the Government shall by statute cause 
the Price of domestic coal to be regulated 
at a percentage of the ascertained Cost. 

(3) This Price (of domestic coal) shall 
bear the same ratio to Cost as the total 
National Consumption of all descriptions 
of commodities does to the total National 
Production of Credit — i.e., 

^*^ Cost : Price : : Production : Consumption. 

Price per ton = Cost per ton x 

Cost value of Total Consumption 
Money value of Total Production 

[Total National Consumption includes Capital 
depreciation and Exports. Total National Produc- 
tion includes Capital appreciation and Imports.] 



(4) Industrial coal shall be debited to 
users at Cost plus an agreed percentage. 

(5) The Price of coal for export shall 
be fixed from day to day in relation to the 
world-market and in the general interest. 

(6) The Government shall reimburse to 
the Colliery owners the difference between 
their total Cost incurred and their total 
Price received, by means of Treasury 
Notes, such notes being debited, as now, 
to the National Credit Account. 



By a. R. ORAGE 

I. (i) For the purpose of efficient Operation 
each geological mining area shall he con- 
sidered as autonomous administratively . 

A somewhat similar recommendation, it 
may be remembered, was made by Sir 
Arthur Duckham in his Minority Report 
of the recent Coal Commission, in which he 
proposed that the separate colliery com- 
panies in each of the natural areas should 
be amalgamated into statutory companies 
for the purpose of local administration. 
The Labour members took objection to the 
proposal on the grounds that it contem- 
plated the creation of a number of coal 
trusts, each monopolist in its own area, 
and that it contained no guarantee of 
betterment of working conditions, or of 
'' the restriction of profits.'* Assuming 
these objections to be removed by the pres- 
ent Scheme, the suggested regionalisation 


of the administration of the industry 
may be regarded as acceptable to the 
Miners' Federation, since in their own 
Draft Bill for the Nationalisation of Mines 
the Federation instructs the '' Mining 
Council " to '' divide Great Britain into 
districts for the purpose of the carrying 
on and development of the Mining In- 
dustry '' (Article 12). It is clear, there- 
fore, that the Miners' Federation has no 
objection to the proposal contained in the 
clause as such and subject to the safe- 
guards provided. Other considerations 
prove that the provision is desirable in all 
respects. Economically every great in- 
dustrial organisation is driven in the 
interests of efficiency to regionalise its 
administration sooner or later, and the 
recent proposal of the Ministry of Trans- 
port to *' group " the railways into six 
well-defined districts, each administratively 
autonomous, is a case in point. In the 
interests of decentralisation, likewise, such 
a devolution of administrative control is 
essential to the efficient working of the 
industry in respect both of conditions and 
personnel. Uniform conditions cannot be 
imposed upon industrial areas differing 


widely in natural and other respects 
without involving all the evils and waste 
of regimented bureaucracy ; what is needed 
is a local administration in intimate touch 
with local peculiarities and free to exploit 
its region's resources in the manner dictated 
by close familiarity with the concrete facts. 
In personnel, furthermore, the aim of 
decentralisation is not only to reduce 
friction by short-circuiting the reference of 
the individual worker to the administrative 
control, but to secure, in the interests 
of efficiency, as close a relation as possible 
between the man at the face of the coal 
and the management in charge. After all, 
it is upon the man at the coal-face that 
the production of coal depends; and the 
object of administration should be to 
provide him with every possible facility as 
regards conditions, times, equipment, and 
inducement, to produce the maximum 
amount of coal with the minimum amount of 
human energy-expenditure. The division of 
mining areas by their natural or geological 
areas ensures a general local administration 
in harmony with the local conditions. The 
corresponding devolution of administrative 
control brings the actual management into 


close touch with the actual worker. And 
finally, in the classification proposed there 
is contained the possibility of the com- 
parison of Costs of working to enable a 
correct estimate to be made of relative 
efficiency in production. The machinery 
involved in the proposal is described in the 
recommendation of Sir Arthur Duckham, 
and is implicit in the Article referred to in 
the Draft Bill of the Miners* Federation. 
The existing separate colliery companies 
in each of the defined geological areas 
would be required to amalgamate into 
statutory companies or, in the alternative, 
to set up working agreements that would 
answer the same end. Such working 
agreements are in operation at this 
moment: and their explicit recognition 
in the form of amalgamation would, in 
all probability, be the best course to 

I. (2) In each of these areas a branch 
of a Bank, to he formed hy the M.F.G.B., 
shall be established, hereinafter referred to 
as the Producers' Bank. The Government 
shall recognise this Bank as an integral 
part of the mining industry regarded as a 
producer of wealth, and representing its 



credit. It shall ensure its affiliation with 
the Clearing House. 

The crucial points in the present clause 
are the following : {a) The nature of Credit ; 
{h) the Miners* Federation of Great Britain 
as a representative of Credit; (c) the 
function of the Producers* Bank; and [d] 
the afhHation of such a Bank to the 
Clearing House. 

[a) There are two kinds of Credit — Real 
Credit and Financial Credit. Real Credit 
is concerned with the probability of the 
delivery of Goods in their various forms; 
Financial Credit is concerned with the 
probability of the delivery of Money in 
its various forms. If we say that Real 
Credit concerns the Supply of Goods 
while Financial Credit concerns the supply 
of money, the distinction may be a little 
clearer. Real Credit is not measured by 
the actual supply of Goods, but by their 
potential supply. The measure of Real 
Credit is, in fact, the correct estimate of 
ability to produce and deliver goods as 
and when and where required. A machine 
has Real Credit to the amount of the correct 
estimate formed of its ability to produce 


goods in demand ; so, too, has an industrial 
plant, an organisation of personnel, and, 
finally, a whole nation. A nation's Real 
Credit is the correct estimate of its ability 
to produce and deliver goods as and when 
and where required by the potential con- 

It will be seen from this definition that 
Real Credit depends upon two factors: 
on ability to produce and a need to be 
satisfied. Either is useless without the 
other; for the Producer of Goods that 
nobody wants is of no more value than a 
potential consumer of what is not pro- 
duced. The Consumer, in other words, is 
quite as necessary to the production of Real 
Credit as the Producer, the Real Credit 
being their joint and common creation. 

Not only, however, is the Consumer 
as such a necessary factor in the pro- 
duction of Real Credit, but the community 
at large is even more indispensable. 
Economically regarded, a nation is an 
association of people engaged in the pro- 
duction of Real Credit, and in this sense 
the State, as the custodian of the Real 
Credit of the community, may be said to 
represent the interests of Producer and 


Consumer equally, since both are equally 
necessary to the creation of Real Credit. 
Since, however, Producers and Consumers 
between them make up the whole com- 
munity, we may conclude that Real Credit 
is social or communal in origin; that it 
belongs neither to the producer nor to the 
consumer, but to their common element, 
the community, of which they each form a 

We may now go on to consider Financial 
Credit. Real Credit we have defined as the 
correct estimate of ability to deliver Goods 
as and when and where required. Financial 
Credit, on the other hand, is the correct 
estimate of ability to deliver Money as 
and when and where required. The dis- 
tinction should be carefully noted, since 
it will be observed that Real Credit is 
based upon Goods, whereas Financial Credit 
is based upon Money, and money, as we 
know, does not necessarily stand in a 
valid relation to goods. Already it should 
be apparent that Financial Credit, being 
based upon Money, is one remove from 
Real Credit, since Money itself is only of 
value in so far as it, in turn, is based upon 
Goods. Thus we see that Real Credit is 


based upon Goods directly, whereas 
Financial Credit is based upon Goods only 
through the medium of Money. 

What is the function of Financial Credit ? 
It is to set in motion and to direct Real 
Credit; it is Money, as we say, that makes 
the wheels go round. Let us suppose, for 
instance, that an industrial plant exists, 
capable of producing, let us say, boots, 
as and when and where required, and that 
the need for boots exists as such ; we have 
then an embodiment of Real Credit — -an 
ability to justify the expectation of a 
satisfactory rate of delivery of boots to 
those who need them. Before that plant 
can be set to work, however, and conse- 
quently before the need for boots can be 
satisfied, certain conditions must be ful- 
filled. The owner of the plant must obtain 
the means of production, in the form of 
raw materials, he must likewise have the 
money with which to pay wages, salaries, 
and other costs; and for the wages and 
salaries he dispenses there must already 
be in existence the food, etc., for his 
employees to buy. In short, before he can 
begin producing boots, he must obtain 
control of the raw materials, etc., which 



are already in existence. How does he do 
it ? Ex hypothesi, he has no Money 
or purchasing-power with which to go into 
the market, or to pay his employees. 
He has only an ability to produce boots, 
given the means just described. Under 
these circumstances he is therefore com- 
pelled to ''borrow'' purchasing - power 
or Financial Credit, as a means to obtaining 
control of the goods he needs in order to 
begin to produce; and the usual organ for 
the issue or lending of such Financial 
Credit is a Bank, since a Bank is, in addi- 
tion to being a custodian of riches, a 
dealer in Financial Credit. 

Now observe that the Bank from which 
our *' capitalist '* proposes to borrow 
Financial Credit for the purpose of setting 
his Real Credit in motion has no use for 
Goods as such. The basis of Money is, 
indeed, the belief that it represents Goods; 
in other words, Financial Credit ultimately 
rests on its association with Real Credit; 
but, immediately, Financial Credit rests, 
as we have seen, on Money; and the con- 
sideration of the Bank is directed, not 
to inquiring whether our producer can 
produce more or fewer boots, boots for 
1 60 


the luxurious few or for the needy many, 
but whether our would-be producer can 
redeliver to the Bank the money he 
proposes to borrow. And this brings us 
once more to the prospective Consumer. 

Suppose that there are no prospective con- 
sumers — it is clear that the Bank will not 
lend money to the Producer which he 
cannot hope to receive from Consumers. 
But, further, suppose that the money in the 
possession of the prospective Consumers is 
only of small amount and soon exhausted; 
in other words, whatever the real needs of 
the consumer may be, their purchasing- 
power only enables them to buy a few 
boots — in that case, again, the Financial 
Credit issued or lent by the Bank will be 
restricted to the estimate of what the 
producer will be able to recover from the 
Consumer ; that is, it will be measured, not 
by the Real Credit inherent in the ability 
to deliver boots as required, but by the 
ability of the producer to recover from the 
consumer the money lent to him. That, 
given the means, our Producer could pro- 
duce more; that, given the money or means 
of demand, the Consumer could consume 
more — these do not enter into the con- 


siderations of the Bank. The Bank is 
concerned with Money, and only with 
Goods as they are or can be related to 

We have seen who are the Producers of 
Real Credit, or the ability to deliver goods 
as and when and where required. They 
are the Producers and Consumers jointly, 
or, in a word, the community at large. But 
we have just seen that they cannot begin 
to actualise their Real Credit until they 
have obtained the control over the means; 
and that this control over the means, in a 
modern State, is exercised by Financial 
Credit. Who is it that controls Financial 
Credit ? Comprehensively the people who 
control Financial Credit are the Financial 
Power, and their acting organs are Banks. 
Banks issue Financial Credit to the pos- 
sessors of Real Credit; and in this way 
enable Real Credit to actualise itself in real 

If this were the whole story, our economic 
grievances might be less than they are. 
If every holder of Real Credit, every 
potential producer of goods in demand, 
could, as a matter of course, " borrow '* 
Financial Credit to enable him to set to 


work, one part of our Scheme, and the 
whole Scheme of men Hke Sir Oswald Stoll 
and Mr. Arthur Kitson would be realised — 
that is to say, every potential producer of 
goods would be enabled to produce. It 
is true that the multiplication of such 
Financial Credits would put up prices, the 
effect of which would be to reduce the 
effective or money demand of consumers. 
In other words, we might give the Producer 
the means to produce, but at the same time 
we should be reducing the ability of the 
consumer to purchase his production, the 
final effect of which would be to stop pro- 
duction. But at least one of the criticisms 
directed against the Banks would lose its 
validity; the Banks would issue Financial 
Credit to every Real Producer on demand. 
But it is not the whole story; for observe, 
once again, that Financial Credit is issued 
by the Banks, not to the producers of goods 
as producers of goods, but to the producers 
of goods only in so far as they are also, if 
at all, producers of Money. Let us suppose, 
for instance, that our boot-producer can 
convince a Bank that by producing fewer 
boots he can collect more money from the 
public. It is not an hypothesis, for, in fact, 


every trust or monopoly aims at this very 
thing : the raising of prices for the purpose 
of obtaining the maximum amount of 
money for a minimum expenditure in 
the deUvery of goods, which, of course, 
ultimately means a minimum of goods. 
The Bank as such is not concerned that 
an insufficient quantity of each descrip- 
tion of goods is certain to be produced; 
in other words, that the Real Credit of 
the community is certain not to be used 
as fully or efficiently as it might be. The 
Financial Credit is issued, in fact, without 
regard to the welfare of the community, 
which consists in the full employment 
of the Real Credit at its disposal. On 
the contrary, its issue is restricted to 
just so much as can be recovered by any 
means from the general public or con- 
sumer — in fact, to the amount of money 
the prospective consumer has to spend. 
When this amount is spent, there may still 
exist a considerable amount of Real Credit 
in the form of a Means to Produce and a 
Need to Consume, but Financial Credit will 
not be issued to unite them. The money in 
the pockets of the Consumer is spent ; and 
the Banks cannot expect to recover what 


they lend. They cease to lend: Production 
ceases and Consumption ceases. 

Now, this disharmony between Real 
Credit and Financial Credit lies at the root 
of our economic troubles; and it is worth 
a great deal of trouble to understand it, 
since no economic solution is possible that 
does not take it into account. We have 
seen that Real Credit is a product of Pro- 
duction and Consumption, and that its 
final source is the Community as a whole. 
(One of these days we shall see that it is 
the world as a whole.) On the other hand, 
Financial Credit, that should be, and was 
designed to be, the handmaid of Real Credit, 
and only exists at all because of Real 
Credit, is the monopoly of a comparatively 
few individuals, scarcely more than i in 
100,000 of the population. By '' corner- 
ing " Money, and by requiring that no 
Real Credit shall be employed save in so 
far as its employment ''makes money"; 
furthermore, by controlling the distribu- 
tion of Money among producers and con- 
sumers alike, they are actually able to 
control, and they do, in fact, control, 
the whole of Real Credit, which, we have 
seen, is a communal creation and possession. 
165 M 


We are not accusing the Financial Power 
of malignant hostility to society, though 
its effects are such as to make the charge 
plausible. The effect is inherent in the 
separation of Real Credit from Financial 
Credit — Social Credit, that is to say, from 
Financial Credit privately controlled. And 
the chief purpose of the present Scheme 
is to restore to the community the full use 
of Financial Credit as a necessary instru- 
ment towards the full use of its Real 
Credit. The means will, we hope, be 
clearer as we proceed. 

[b) The Miners* Federation of Great 
Britain (to keep to our chosen example) 
is an organisation of men engaged in the 
production of coal. Coal, it will be allowed, 
is a chief asset in our national life and 
industry; in other words, it is a considerable 
factor in our total ability to deliver goods 
and services as and when and where re- 
quired. In short. Coal is a contribution 
to the nation's Real Credit. Whatever 
may be the claim to Real Credit of the 
owners and administrators of the plant, 
etc., employed in Mining (the capitalists), 
it will not be denied that the Miners' 
Federation, as the contributors of Labour, 


have a similar claim. Coal cannot be 
produced in abundance without Capital, 
but it cannot be produced at all without 
the Labour of the M.F.G.B. The M.F.G.B. 
have only to go on strike to prove it; to 
prove, namely, that they are indispens- 
able to the production of coal — that is, to 
the creation of the Real Credit dependent 
on Coal. It follows that the M.F.G.B. 
is at least equally entitled with Capital 
to share in the Financial Credit that rests, 
in the last resort, on Real Credit; that, in 
short, the M.F.G.B. is a proper representa- 
tive of part, at any rate, of the Real Credit 
due to Coal. Similarly, the public, as 
representing the ultimate reason for the 
existence of the Mining Industry, is also 
a factor in its Credit, and the depositors 
in the Bank are, as depositors, members 
of the public without qualification. 

(c) A Bank is the organ for the issue 
of Financial Credit against Real Credit, 
through the medium of Money. The Pro- 
ducers' Bank herein suggested is the repre- 
sentative, in the first place, of the power 
inherent in the Real Credit contributed 
to the Mining Industry by the workers 
engaged in it, although its interest becomes 


increasingly that of its depositors, and its 
function, in the second place, would be to 
issue Financial Credit against the Real 
Credit inherent in the ability of the 
M.F.G.B. to produce coal, and the need 
of the public /or coal. 

{d) The affiliation of such a Bank with 
the Clearing House, at which cheques drawn 
upon the various banks are exchanged or 
*' cleared,*' is necessary to the currency 
of the cheques of our Producers' Bank. 
It is thereby brought into relation with the 
Financial Credit of the community as a 

I. (3) The shareholders of the Bank shall 
consist of all persons engaged in the Mining 
Industry, ex-officio, whose accounts are kept 
by the Bank. Each shareholder shall be 
entitled to one vote at a shareholders' meeting. 

'' The persons engaged in the Mining 
Industry " include not only the wage- 
earners who now constitute the M.F.G.B., 
but the present '' salariat.'' With the 
creation of a joint interest in a common 
Credit represented by the Producers' Bank, 
and the abolition of the distinction between 
Capital and Labour as regards Financial 


Credit, the present exclusively proletarian 
Trade Union ceases to be necessary. Like- 
wise, the separation of the salariat from 
the wage-earners ceases to have any real 
meaning. Thus the organisation becomes 
an Industrial Union, united as a single 
body of producers, and the former Trade 
Union, based on the antagonism of Labour 
and Capital, and organised, not in the 
interests of Production, but as a weapon of 
defence and offence against the Capitalist 
class as such, disappears, its end in the 
establishment of an all-in Industrial Union 
having been attained. The qualification 
'* whose accounts are kept by the Bank " 
is intended to cover the continuing member- 
ship of those who may leave the industry. 
Thus if any member of the M.F.G.B. should 
leave the industry, after having contrib- 
uted to the Credit which was employed 
to create the Capital, he would continue 
to benefit from the shares so acquired, and 
the Bank would hold such shares in the 
Capital of the Mining Industry as had been 
allotted to him together with the privileges 
belonging to them. 

The provision of a single vote for each 
shareholder is designed to obviate the 


possibility of control of Bank policy by 
merely the most highly paid members of 
the M.F.G.B. Presumably every member 
of the organisation is necessary to the 
organisation; in other words, to its Credit; 
and of equals one cannot be more necessary 
than another. The aim, moreover, is 
democratic control of policy (not, be it 
understood, of processes), and since the 
Producers* Bank defines policy, while 
leaving means to the Capital directorate, 
the democratic principle of One Member 
One Vote is essential. 

I. (4) The Bank as such shall pay no 

The Producers' Bank, it must be re- 
membered, differs from the ordinary Bank 
in resting its Financial Credit, not upon 
Money, subscribed as Capital or borrowed 
in the form of Cash and other Deposits, 
but upon its Real Credit — that is to say, 
upon its ability to produce Coal as and when 
and where required. Since, however, its 
Real Credit is convertible by means of its 
Financial Credit into Capital, and this 
Capital itself '' earns a dividend " as a 


contributory to the general Capital of the 
industry, to pay a dividend on the Bank's 
issue of Credit would be to pay a dividend 
twice over — namely, on the Credit issued, 
and on the Capital thereby created. The 
Producers* Bank is nothing more than the 
representative of the Real Credit of the 
M.F.G.B. — its financial agent, it may be 
said. Its business is to transform Real 
Credit into Financial Credit for the purpose 
of creating fresh Capital; and it then 
becomes the business of the fresh Capital 
so created to earn and pay a dividend. 
Moreover, it is not proposed, under the 
Scheme, nor is it at all desirable, that the 
Producers' Bank should represent any other 
Credit than the Real Credit of the in- 
dustry; or that the Credit issued should 
be on any other account than that of the 
industry itself. The Producers' Bank is 
not a money-lending institution; nor does 
it, corporately, own any real Capital. 
It is, once more, simply the financial organ 
and representative of the Real Credit of 
the M.F.G.B. 

I. (5) The Capital already invested in the 
Mining properties and plant shall he en- 


titled to a fixed return of, say, 6 per cent., 
and, together with all fresh Capital, shall 
continue to carry with it all the ordinary 
privileges of Capital administration other 
than Price-fixing. 

It is certain that the proposal to re- 
cognise the rights in perpetuity of the 
Capital already existing in the Mining (or 
any other) Industry will arouse opposition 
among those who are more concerned with 
historic phrases than with facts, and more 
disposed to revenge, under the cloak of 
*' principle,*' than to the discovery of the 
best practical solution of the social prob- 
lem. Such opposition, however, must 
be faced, and, if possible, overcome; and 
the means to this end are two. In the first 
place, it can be pointed out that as a matter 
of fact every other method of dealing with 
existing Capital than the frank recogni- 
tion of its claims is either unpractical 
or amounts in the end to a veiled recogni- 
tion of the claims in question. What are, 
in fact, the proposals ? They are con- 
fiscation out and out, purchase by the 
State, or confiscation with what is called 
a "compassionate allowance'' — the pro- 
vision, that is to say, of terminable annuities 


to the dispossessed owners of Capital. Is 
there any practical man in the Labour 
Movement who believes in his heart that 
either of the methods of confiscation sug- 
gested is conceivably possible without a 
real revolution ? Assuming for a single 
instant that a real revolution would not 
destroy Capital in the process (and thereby 
nullify itself as a means of confiscating 
Capital), does any Labour leader, responsible 
or irresponsible, believe that confiscation 
without revolution is possible ? Would 
one of them venture to stake anything he 
personally holds dear upon it ? There are, 
as we have said, Socialists and Labour 
leaders who preach confiscation as a 
" principle," and who, we have no doubt, 
would try to put the principle into practice ; 
but it is more than doubtful whether one 
of them honestly believes that a policy of 
confiscation is practicable, save by means 
of a revolution in which much of the 
Capital in question would disappear. 
Purchase by the State, on the other hand, 
is simply covert, instead of overt, recogni- 
tion of the claims of Capital. It is per- 
fectly true that by transferring by purchase 
the ownership of the existing Capital from 



its present owners to the State, the present 
owners are got rid of — from the industry 
in question. But not only are there new 
owners exercising all and even more of the 
privileges of the transferred Capital, but 
the bought-out former owners are now 
provided with Financial Credit (in the 
form of money or State bonds) with which 
they can proceed, if they please, to acquire 
Capital either in another industry in the 
same country or in an industry abroad. 
In short. State-purchase is pow^erless to 
** get rid of '' the Capitalist qua Capitalist. 
The policy differs from confiscation, per- 
haps, in being practicable; indeed, many 
capitalists would welcome it as a means of 
liquidating their present Capital; but its 
effect is much the same. An attempt at 
confiscation would destroy Capital; and 
State-purchase would not '' abolish the 
Capitalist.'* Neither method is, therefore, 
really practical towards the real end in 

The Scheme's recognition of the claims of 
existing Capital does not rest, however, 
solely on the ground of expediency. Ex- 
pediency, it is true, is not to be despised 
as a means to an end, wb^^li the end is 


nothing less than the welfare of the world. 
And a good many '' principles '' would be 
worth sacrificing to the practical task of 
solving the economic problem of mankind. 
However, as has been said, it is not wholly 
or even mainly a matter of expediency in 
the present case; it is also a matter of 
principle; and the principle becomes clear 
when it is realised, first, that the only 
privilege which Capital now exercises to 
the detriment of Society and of itself — 
namely, Price-fixing — is removed from it; 
and, secondly, that all the ''fresh Capital'* 
(much of it the direct property of the in- 
dividual Producers) ranks equally with the 
existing Capital in its claim to privileges. 
To take these points in their order: let 
it be considered first, what are the privi- 
leges of Capital, when Price-fixing has been 
subtracted from them. They do not in- 
clude Financial Credit, since ex hypothesi, 
and under the Scheme, the control of the 
Financial Credit of the industry is in the 
hands of the Producers by means of the 
Producers' Bank. They will be found, in 
fact, to consist of the dutiesand instrumental 
means of administration together with the 
receipt of *' dividends " or a share in the 


proceeds of such administration — that and 
nothing more. And, to come to the second 
point, since it is proposed that the M.F.G.B. 
through its Producers* Bank should herein- 
after contribute to the Capital of the in- 
dustry, the M.F.G.B. by means of its 
Capital holding will share in all the privi- 
leges of administration and dividends as 
defined. Take from existing Capital its 
monopoly of the Real Credit of the in- 
dustry; take from it the power to fix 
prices, and the whole evil of Capitalism is 
removed; for, as Socialists frequently as- 
sert, it is not Capital that is evil, but 
Capitalism; and Capitalism can be defined 
as the improper use of Capital. Under the 
Scheme it is proposed to take from Capital 
the improper privileges it has hitherto 
exercised. They are not the privileges 
of administration or the privilege of deriving 
an income from the proceeds; they are the 
privileges of a monopoly of credit and a 
monopoly of the power to fix Prices. Given 
the restoration of these privileges to their 
proper source, the community as Producer 
in the one case, and the community as 
Consumer in the second case, we cannot 
have too many Capitalists, sharers by 


right in the dividends of communal work. 
The Scheme looks forward to the time when 
everybody will draw a dividend in virtue 
of his sharehold in the communal enter- 

I. (6) The Boards of Directors shall make 
all payments of wages and salaries direct 
to the Producers' Bank in bulk. 

There is nothing novel in this proposal, 
since we understand from Lord Leverhulme 
that already Messrs. Lever Brothers have 
adopted the system of bulk-payment of 
wages and salaries through a local bank 
in their works in the North of England. 
The procedure is simple and certainly 
time-saving, as regards the administration 
of an industry. A cheque is made out by 
the Directorate for the full amount of 
the period's wages and salaries; the same 
is credited to the Producers' Bank, and 
the latter credits its members with their 
respective amounts. It may be convenient 
that the bulk-payment by the Directorate 
should be made partly by cheque (con- 
vertible into legal tender), partly in cash 
or legal tender itself. It is a matter of 
detail. What is not a matter of detail is 



the existence of a current of Financial 
Credit passing constantly through the 
Producers' Bank. It is estimated that 
the weekly wage-bill in the Mining Industry 
amounts to 4J millions. Add to this 
another J million on account of salaries, 
and it will be seen that we have a constant 
current of Credit amounting to 5 millions 
passing through the Producers* Bank. 
Any Bank in the world would consider 
itself prosperous with such a client at its 
disposal. An individual who should de- 
posit in a Bank 5 millions every Friday 
evening could carry on a considerable 
Banking business, even if on every other 
day of the week he should withdraw part 
of his deposits. Provided that his delivery 
of 5 millions in cash or credit were certain 
every Friday evening, his effective deposit 
would, in fact, be a cross-section of the 
current any day of the week; his constant 
credit, in other words, would be the whole 
sum of 5 millions. This fact of the 
"solvency'' of the Producers' Bank in 
the accepted sense of the word must be 
insisted on, even though, in other respects, 
the Producers' Bank is not as other Banks ; 
it does not '' lend " credit indiscriminately, 


but only in its own industry, and on its 
own Real Credit. Without a penny of 
*' money '' the Producers* Bank would 
discharge all the functions assigned to it. 
With a current of ordinary Financial Credit 
of 5 millions passing through it, no question 
can be raised of its right to issue Financial 
Credit. Its right is double that of the 
ordinary Banks, since it possesses at once 
the basis of Financial Credit — namely, 
Cash; and the basis of Real Credit — 
namely, the ability of the M.F.G.B. to 
produce coal as and when required. 

I. (7) In the case of a reduction in cost 
of working, one half of such reduction shall 
he dealt with in the National Credit Account, 
one quarter shall be credited to the Colliery 
owners, and one quarter to the Producers* 

A reduction in the cost of working is 
equivalent to an increase of Real Credit, 
being, as it is, an increase in the ability to 
produce as and when and where required. 
An illustration will make this plain. Suppose 
that the cost in man-hours of producing a 
million tons of coal this year were reduced 
by one half next year, the Real Credit of 


the Mining Industry would be exactly 
doubled; in other words, the ability to 
produce coals would be twice what it had 
been. Such reduction of cost, however, is 
never the sole unaided work of either the 
community, the owners of the Capital, or 
the workmen. No invention or improve- 
ment in cost-saving springs fully developed 
in any one brain or in the community at 
large; but it presumes the existence of 
communal facilities, of the facilities afforded 
by existing Capital and of the education 
and skill of the workmen. In a word, to 
every invention of cost-saving there have 
been contributed elements drawn from the 
community, from Capital, and from Labour. 
The present clause recognises this un- 
doubted fact, and in a practical manner dis- 
tributes the increased credit more or less 
proportionately among the factors to which 
it is due ; to the community as represented 
by the National Credit Account, one half; 
to the Mining Directorate (which, it will 
be remembered, tends under the Scheme to 
become identical with the M.F.G.B.), one 
quarter; and to the Producers' Bank, 
representative of the M.F.G.B., the re- 
maining quarter. To return to the fore- 


going illustration, a reduction of 50 per 
cent, in cost enabling, let us say, 2 million 
tons of coal to be produced at the former 
cost of I million, and reckoning the former 
cost as £j. per ton, would involve the 
distribution amongst the three parties of 
the cost saved. The National Credit Ac- 
count would be credited with ^ a million 
pounds, and each of the other two ac- 
counts with |- of a million. The question 
where the money would come from is 
irrelevant; the increased Financial Credit 
would be the simple reflection of the in- 
creased Real Credit resulting from the 
increased ability to produce coal. It need 
scarcely be pointed out that the inducement 
to reduce costs is part and parcel of the 
present clause. One of the fundamental 
principles, indeed, of the whole Scheme, 
is the economy of energy, which, in the 
positive sense, is the increase of Real 
Credit. The community, the Capitalist, 
and the workman are each offered an 
inducement to economise energy; in other 
words, to produce as much as possible at the 
smallest possible cost, a proceeding in 
direct antithesis to the existing state of 

181 N 


I. (8) From the setting to work of the 
Producers' Bank all subsequent expenditure 
on capital account shall he financed jointly 
by the Colliery owners and the Producers* 
Bank, in the ratio which the total dividends 
bear to the total wages and salaries. The 
benefits of such financing done by the Pro- 
ducers' Bank shall accrue to the depositors. 

We have seen from Clause I. 2 that 
the Producers* Bank represents that part 
of the Real Credit of the Mining Industry 
which rightly belongs to the Labour (wage 
and salaried) represented by the M.F.G.B. 
The Colliery owners or Directorate of the 
Capital of the Mining Industry have their 
own means of obtaining credit. The pres- 
ent Clause proposes that sll future Capital 
expenditure shall be jointly subscribed 
by the Producers' Bank and the Colliery 
owners in a certain proportion — the pro- 
portion, in fact, which their respective 
contributions to the Real Credit of the 
Mining Industry bear to one another as 
measured in terms of their respective costs. 
It is understood that in the Mining Industry 
the allocation of costs between the direct 
producers and the owners of the Capital is, 
roughly, 9 to i. In other words, if 100 


million pounds be the annual cost of 
producing our coal, lo million pounds is 
the cost of Capital, and 90 million pounds 
is the cost of Labour. It will be remem- 
bered that Costs are issues of credit. It 
follows that, assuming that these issues of 
credit are properly distributed, the pro- 
portions as regards the Real Credit of the 
industry are the same; and that the ratio 
of 9 to I is a correct representation of 
the relative contributions of Labour and 
Capital. For reasons already explained 
(I. 5) it is not proposed to make a retro- 
spective reallotment of the existing 
Capital; but, on the other hand, a term 
is set to the existing monopoly of credit 
by only one of its factors. All future 
expenditure on Capital account — in other 
words, all fresh Capital required in the 
Mining Industry — is to be subscribed in 
the proportions named by the two parties, 
and is to be held and exercised by them 
with all the rights and privileges attached. 
Let us suppose, for instance, that following 
upon the creation of the Producers' Bank 
representative of the Real Credit, for which 
the M.F.G.B. is responsible, a Directorate 
decides that a Capital expenditure of 


£100,000 is needed in order to open up a 
new mine or to develop an old one. The 
proposal is considered by the Producers* 
Bank, and any banks representing other 
Capital interests, and, if passed, proceeds 
to be dealt with as follows. The pro- 
portion of Wages and Salaries to Dividends 
being, we will suppose, 9 to i, the Capital 
expenditure of £100,000 falls to be sub- 
scribed by the Producers' Bank and the 
Colliery owners in the amounts, respec- 
tively, of £90,000 and £10,000. The Pro- 
ducers' Bank thereupon issues a credit to 
the Directorate of £90,000, and thereby 
secures a corresponding share in the Capital 
of the industry. £90,000 worth of shares, 
in other words, are transferred or allotted 
by the Directorate to the Producers' 
Bank on account of the M.F.G.B., and 
such proportion of the *' money " required 
as represents a correct estimate of increased 
rate of delivery is provided by a local 
credit, and does not affect the depositors' 
accounts. It is perfectly clear that in 
these circumstances one of the avowed 
aims of Labour — namely, a share in the 
control of Capital — would at once be on 
the way to fulfilment; and without, it will 


be observed, either expropriating existing 
Capital or Capitalists, or in any way 
** abolishing '' the proper privileges of 
Capital administration in general. And, 
moreover, since it is notorious that in the 
Mining Industry, as in most other in- 
dustries, considerable Capital expenditure 
is long overdue, the Producers' Bank would 
not have long to wait to acquire a corre- 
spondingly considerable holding in the 
Capital of the Mining Industry. We have 
been informed, in fact, that within ten years 
or so, under the operation of the present 
Clause, the Producers' Bank would be well 
in sight of the control (on behalf of the 
M.F.G.B.) of half the Capital of the in- 
dustry. That the Colliery owners may con- 
ceive an objection to the subscription by the 
M.F.G.B. of nine-tenths of the new Capital 
they require is possible, and, perhaps, 
probable; but it cannot be said to be 
reasonable. Their present holding remains 
unimpaired together with all the privileges 
they do, in fact, claim for it; they are 
guaranteed as to the future, in which 
likewise, they share in the proportion due 
to their holding, and their present difficulty 
in raising fresh Capital is reduced, without 


any loss to themselves, to one-tenth. 
When we add that the social economic 
problem is thereby solved, the remaining 
objections must be regarded as fanciful. 
No practicable alternative to the Scheme 
exists in the minds of the irreconcilables 
on either side. 

II. (i) The Government shall require from 
the Colliery owners a quarterly [half-yearly 
or yearly) statement, properly kept and 
audited, of the cost of production, including 
all dividends and bonuses. 

The provision for a periodical Statement 
of Costs, which should be as nearly as 
possible uniform in character, is not only 
necessary in view of the particular ratio 
afterwards to be established between Cost 
and Selling-price, but it is necessary as 
an item in the estimate of the total national 
expenditure. In other words, it is an 
indispensable element in the National Book- 
keeping of our National Credit Account. 
It is a reflection on a community that 
prides itself on its commercial efficiency, 
that, hitherto, no proper National Balance 
Sheet has been returned or has been re- 
turnable. Every estimate of our situation 


as an industrial nation has been largely 
guesswork, and has allowed for differences 
of opinion in regard to our condition 
varying from the opinion that we are 
wealthy beyond the dreams of avarice to 
the opinion that we are a poor nation 
on the verge of bankruptcy. The in- 
stitution of a regular and more or less 
uniform accounting system, showing the 
national costs of Production, is a belated 
reform that has now become practically 
urgent. In the present Scheme it is 

II. (2) On the basis of this ascertained 
Cost, the Government shall by statute cause 
the Price of domestic coal to be regulated at a 
percentage of the ascertained Cost. 

It is so long since many of us were at 
school that the meaning of the word ''per- 
centage," as of the word '' ratio," may 
forgivably have been forgotten. A per- 
centage, then, is only a part of a hundred. 
For instance, 50 is part of 100; and 50 
is therefore a percentage. Any number 
less than 100 is a percentage. One is i 
per cent., 2 is 2 per cent., and so on up to 
99, which is 99 per cent. The present 


Clause proposes that the Price of domestic 
coal shall be only a part of the Cost, or 
a fraction of the Cost, the part or fraction 
being represented as a part of loo, or a 
percentage. Suppose that the Cost, as 
estimated in the audit mentioned in II. i, 
is 100 pounds or shillings or pence, the 
value of the unit being no concern. Then 
the Price to be charged for it, in the case 
of domestic coal, is only a part of loo — 
that is, something less than the apparent 
Cost. It may be that the Price should 
be 10 if the Cost is loo ; or it may be 20 or 
30, or 40 or 50 — in fact, any number up 
to 100, by which time Price would no 
longer be a part or percentage of Cost, 
but equal to Cost. It is important that 
there should be no doubt about the meaning 
of this Clause, since at the first glance the 
idea appears paradoxical. The meaning 
is in the literal sense of the words. It is 
proposed to sell domestic coal at a part or 
fraction or percentage of its Cost; in other 
words, at something less than Cost. The 
function of the Government or State in the 
matter is not arbitrary, as we shall see in 
the next Clause. It is not proposed that 
the Government shall sell domestic coal at 


any price it pleases. The Government's 
function, it will be seen, is to compile 
statistics, and to publish the results in a 

II. (3) This Price {of domestic coal) shall 
hear the same ratio to Cost as the total National 
Consumption of all descriptions of com- 
modities does to the total National Pro- 
duction of Credit — ix., 

^*^ Cost : Price : : Production : Consumption. 
Price per ton = Cost per ton x 

Cost value of Total Consumption 
Money value of Total Production 
[Total National Consumption includes Capital deprecia- 
tion and Exports. Total National Production includes 
Capital appreciation and Imports.] 

In considering this Clause, a crux of 
the whole Scheme, it is necessary to bear 
in mind the definition already given (I. 2) 
of Real Credit. Real Credit is the correct 
estimate of ability to produce and deliver 
goods as and when and where required. 
It does not consist of actual goods alone, 
but of actual goods plus potential goods. 
In fact, the potentiality of goods — in other 
words, the correct belief that goods can 
actually be produced and delivered as 


and when and where wanted — is more im- 
portant in the long run than actual goods 
themselves, since it represents a resource 
of power over and above that necessary 
to supply to-day's needs. 

Looking at Production as being engaged 
in producing not only actual goods but the 
means of producing more goods, it will be 
seen that our total National Production 
is not to be measured by the amount of 
actual goods produced. The amount of 
actual goods produced is only a part, a 
fraction, a percentage, of our total pro- 
duction, if we include in our total pro- 
duction the means to make more goods. 
In other words, the actual goods we produce 
every year are only a fraction or percentage 
of the Real Credit we produce any year; 
and since it is by the growth of our Real 
Credit that we grow in wealth, it follows 
that our production of actual goods may be 
small at the same time that our production 
of Real Credit may be very great. Let us 
suppose, for instance, that by the con- 
struction of a considerable amount of 
very complicated and costly machinery 
we could ensure for ourselves, ever after- 
wards, an unlimited supply of, let us say, 



nitrogen from the air or energy from the 
sun's rays. During the period of its con- 
struction the whole nation might be doing 
very Httle else in the way of production; 
we might all be foregoing actual goods, 
producing as few as possible, consuming as 
few as possible, in order that the work of 
producing the new machinery should get 
forward with the utmost speed. In income 
during that period, as measured by the 
amount of actual goods produced (which 
is the method adopted by the orthodox 
economists and statisticians), we should 
appear to be a wretchedly poor nation. 
But by reason of the estimated ability of 
our new machinery to deliver goods in the 
future, as and when and where required, 
our total production, not of Goods, but of 
Real Credit, would nevertheless have been 
enormous; and we should be entitled to 
regard ourselves at the end of the period 
as '* wealthier than ever." This illus- 
tration, which is by no means far-fetched, 
should enable the point to be grasped 
that our total National Production does 
not consist of actual Goods alone; the 
actual Goods produced are only a part 
of what is produced. The rest of our total 


National Production consists in the means 
to make more goods, or, as we say, it 
consists of Capital Goods and improved 
processes; and Consumable Goods plus 
Capital Goods make up between them 
the sum of the Real Credit produced. To 
repeat the definition given in the present 
Clause, our total National Production con- 
sists of actual Goods, Capital Goods and 
their appreciation productively regarded, 
and Imports — that is to say, of Goods 
*' produced '* from other countries. 

It will be seen that the definition of our 
total National Consumption follows on the 
lines of the definition just given of our 
total National Production. If what we 
produce consists of actual goods, capital 
goods and appreciation, and imports, then 
what we consume must consist of the same 
things the other way round. If we produce 
actual goods, we also consume actual 
goods. If we produce and appreciate or 
improve Capital goods we also destroy 
and depreciate or wear out Capital goods. 
And if we import goods of both kinds, we 
also export goods of both kinds; and 
exports, so far as this country is con- 
cerned, is a species of consumption, as 


imports are a corresponding species of 

Our Total National Balance Sheet may 
therefore be said to run as follows: 
Credit, actual goods produced, plus Capital 
appreciation plus Imports. Debit, actual 
goods consumed plus Capital depreciation 
plus Exports. The balance one way or 
the other would show whether as a com- 
munity we had done well or badly. The 
whole would constitute our National 
Credit Account. 

The question whether in any given year 
the balance of our total National industry 
is on the right side or the wrong side is 
one to be settled, in the first place, by 
common knowledge, and in the second 
place, more exactly by proper accountancy 
and statistics. Remembering that Pro- 
duction includes not only actual Goods, 
but Capital goods and appreciation; and 
that it is to be measured, not by income 
based upon actual goods, but by the 
amount of the Real Credit produced; re- 
membering, again, that the sum of our con- 
sumption is only actual Goods consumed, 
plus the depreciation of Capital — it must 
seem to common sense that, in fact, the 


sum of our annual National Production of 
Real Credit vastly exceeds the sum of our 
annual consumption of Real Credit; in 
other words, that on a correct estimate 
of our ability to produce and deliver goods 
as and when and where required, our Real 
Credit increases annually and probably 
at an accelerating rate. The point need 
not be laboured. Everybody knows that, 
thanks to discovery, invention, science, 
education, organisation, and all the other 
factors of " progress,'' our ability to deliver 
goods is constantly increasing. We do 
not say, of course, that our annual actual 
output has increased or is increasing at 
the same rate as our ability to produce. 
That, in fact, is part of the trouble. All 
that is said is that our net Real Credit or 
estimate of our ability to deliver goods as 
and when and where wanted is always 
increasing. We may consume more; but 
always our means of producing more in- 
creases faster than our consumption. 

What is the precise ratio of our total 
National Production to our total National 
Consumption ? In other words, what part 
or fraction of Production is Consumption ? 
Do we produce (in the sense defined) twice 


as much, three times as much, four, five, 
six, ten times as much as we consume ? 
What fraction of our total National Pro- 
duction of Real Credit is our total National 
Consumption of Real Credit ? Without 
the exact statistics it is impossible to tell 
to a nicety. Various estimates have been 
made, and we are assured by the Board 
of Trade's experience of the Census of 
Production that a more or less exact 
calculation is not difficult. We have no 
doubt whatever that a rough estimate, 
answering our purpose, could be got out 
in a few weeks; and later statistics would 
correct an initial error. The point at 
issue would be satisfied, moreover, by an 
approximation ; and there is no doubt in the 
minds of those able to form an estimate 
at all that the ratio of Production, as 
defined, to Consumption, as defined, is well 
within the expression of 4 to i; in other 
words, that our total National Production 
of Real Credit is at least four times our 
total National Consumption of Real Credit; 
the ratio of Consumption to Production 
being, therefore, i to 4, as the ratio of 
Production to Consumption is 4 to i. 
To return to the formula contained in 


the present Clause, it follows that if Price 
is to be the same fraction or part or 
percentage of Cost as our total National 
Consumption is of our total National 
Production, then Price (of domestic coal in 
this case) must be one quarter of Cost. 
The ratio of total Production to total 
Consumption being 4 to i, Cost and Price 
are to each other as 4 is to i; or, again, 
Price must be a quarter of Cost. 

It may be asked, at this point, why an 
isolated commodity like coal should be 
sold '' below cost." Note first that the 
reduction applies only to domestic coal — 
coal, that is to say, used only as an ultimate 
product. It does not apply to capital 
coal — that is to say, to coal used for further 
production. This is made clear in the next 
Clause. Likewise it does not apply to 
exported coal, the price of which is defined 
in Clause II. 5. It applies only to domestic 
coal, to coal actually delivered to its final 
consumers. Note, in the second place, that 
the question of reimbursing the Coal 
Directorate for the difference between their 
costs and the present proposed selling-price 
does not arise at this point. We shall 
consider it later when commenting on the 


last Clause of the Scheme (Clause II. 6). 
At this moment we are engaged in asking 
and answering the question why domestic 
coal should be sold, apparently, below cost ; 
in fact, at one quarter of its apparent cost. 
The answer will be found from a re- 
examination of the meaning of the crucial 
words, Real Credit. Real Credit we have 
defined as the correct estimate of ability 
to produce and deliver goods as and when 
and where wanted. The production of 
Real Credit is our national work; and not 
only the producer contributes to it, but 
the consumer as well (see Clause I. 2). 
The production of Real Credit, in fact, is 
a communal work, even though only in- 
dividuals and organisations appear to be 
engaged directly in it. But the purpose 
of our national industry follows or is con- 
tained in the definition of Real Credit; 
in other words, it is to deliver goods as 
and when and where they are required. 
It is obviously useless to have a productive 
plant, erected at great cost, that either 
produces goods that nobody wants, or 
that fails to deliver goods as and when and 
where they are wanted. The only value 
of Production lies in its Real Credit; and 
197 o 


its Real Credit consists in the belief or 
estimate that it can deliver goods as 

If that is now clear, we can proceed to 
observe that the production of Coal serves 
two purposes; one, to provide fuel for 
domestic use — that is to say, a commodity 
of direct service; and the second, to provide 
the means of producing other commodities 
through the instrument of capital goods 
in the form of machinery, transport, power, 
etc. In other words, the production of 
coal serves both to actualise Real Credit 
by delivering domestic coal to the ultimate 
consumer, and to create more Real Credit 
by being used in capital appreciation. 

Balancing these two uses of coal against 
one another, we can say that one part of the 
coal produced contributes to the consump- 
tion of the nation without any corresponding 
advantage to Real Credit (except in so far 
as domestic coal is necessary to our general 
well-being), while the other part of the 
coal produced is, indeed, consumed, but 
only to bring about an appreciation of 
Real Credit in the form of an increased 
ability to produce other ultimate goods. 
Our accounts as regards coal, in fact, are 


as follows : Net Real Credit produced equals 
the increase of our total Productivity 
minus the sum of our consumption of coal, 
including in the latter both domestic and 
capital consumption. 

Analyse this a little farther. It is not 
denied that coal is a contributory to our 
Real Credit. Much of our Real Credit, 
in fact, depends upon Coal. The total cost 
of producing coal is, therefore, an item 
in our National Real Credit Account: and 
that part of the coal produced and con- 
sumed which is employed in capital appre- 
ciation is a clear gain to the Real Credit of 
the community. Following the argument, 
it clearly appears that the community 
should share in the appreciation of Real 
Credit brought about by the production of 
Coal at the same time that it shares in the 
depreciation resulting from the consump- 
tion of coal. In other words, the com- 
munity as consumer should, indeed, dis- 
charge the whole of the cost of producing 
coal; but, since only a part of the coal 
produced is consumed without National 
Credit return, while another part is con- 
sumed only in order to create more National 
Real Credit, the total price charged to the 


ultimate or domestic consumer of coal 
should be that fraction of the total cost 
of coal which the total National Con- 
sumption of Credit is of the total National 
Production of Credit. In short, domestic 
coal should be sold at one quarter of the 
cost of producing coal. 

The problem may be approached in 
another way. Assuming that our total 
National Production of Real Credit is four 
times (or whatever it is) of our total National 
Consumption of Real Credit, how is the in- 
dividual or collective consumer — who, be 
it remembered, is an integral factor in Real 
Credit, and as truly part-producer of it 
as the direct producer himself — how is he 
to share in the surplus of Credit-Production 
over Credit-Consumption ? It is conceiv- 
able that a balance might be struck at the 
end of our financial year, showing the 
nation's net gain of Real Credit, and that 
every citizen should be credited with his 
share of the increment of credit revealed. 
That would be a co-operative common- 
wealth indeed. The proposal of the Scheme 
is much simpler in practice, though the 
theory is similar. Instead of waiting until 
the end of each year, and then appor- 




tioning the increment of Real Credit to 
every individual, the present Clause pro- 
poses to distribute the Credit at the same 
time that the Goods in question are bought, 
by charging to the consumer as Price only 
that fraction of Cost which Total Consump- 
tion is of Total Production. If he be 
charged the Cost Price, he is clearly 
being debited with Consumption without 
at the same time being credited with the 
Production that is brought about by Con- 
sumption. He is charged with the de- 
preciation of Credit, but he is not given 
the benefit of the resulting appreciation 
of Credit ; and the total National Increment 
of Real Credit either goes into private hands 
or requires to be divided at the end of the 
year. By fixing the Price of all ultimate 
products (domestic coal in this instance) 
at the same fraction of Cost that our total 
National Consumption of Credit is of our 
total National Production of Credit, the 
consumer is given his share of the incre- 
ment of National Credit at the very moment 
when he wants it — that is to say, when he 
is buying the goods which Real Credit 
exists to deliver to him. 



II. (4) Industrial coal shall be debited to 
users at Cost plus an agreed percentage. 

The purpose of the provision herein 
made is clear. It is to secure that the 
estimates of Cost (see II. i) shall include 
all costs, this being a condition of the 
subsequent fixing of Price by the ratio of 
Cost to Price. Furthermore, since the 
use of coal for industrial or capital purposes 
is not yet the use of coal for ultimate or 
personal consumption, the full cost of 
industrial coal must be debited to the 
Production in which it will afterwards 
appear as an increment of Real Credit; 
in other words, it must be fully charged 
to the industry that proposes to create Real 
Credit by means of it. The contention 
that, since domestic coal is consumed 
without return (save in welfare !), while 
industrial coal is consumed only to re- 
appear as enhanced Real Credit, therefore 
domestic coal should be charged at Cost 
and industrial coal sold below cost (re- 
versing, in fact, the provisions of the 
Scheme) , will not bear examination. It is 
true that domestic coal is consumed without 
yielding credit, while industrial coal is 
consumed to yield up credit; but since the 


final definition and purpose of Real Credit 
is to deliver goods to the final consumer — 
that or nothing being the sole justification 
of industry — it follows that Real Credit 
is only actualised by final consumption; 
until it results in the actual delivery of 
actual goods to the actual consumer, it 
is only part of the process of cost. Price, 
in short, must be confined to the means of 
transferring ultimate goods to the ultimate 
consumer. Until we reach this stage in the 
process, there are no Prices properly so 
called, but only Costs of producing Real 
Credit. Finally, no industrial user of coal 
can complain if he is charged merely with 
the cost of his coal; it is entered among 
his costs in general; and he is given full 
credit for it. In course of time we shall 
deal with his final product in the same way 
in which coal is now being considered. 
— that is to say, his final product also will 
be sold *' below cost." 

II. (5) The Price of coal for export shall 
be fixed from day to day in relation to the 
world-market and in the general interest. 

Without consenting to the doctrine that 
*' the foreigner must pay," it is obviously 


impossible to apply to the world, which is 
not yet a single Credit-area, the principles 
applicable to a community that is. Coal 
is one of the factors in the production of 
our Real Credit; and it may be that by 
exporting some of it abroad in exchange 
for other commodities our Real Credit may 
be more enhanced than by consuming it all 
at home. The Price to be charged abroad 
cannot, however (as yet), be fixed in either 
the ratio of domestic coal or at the cost 
of industrial coal, since in the case of 
exported coal our only return is what we 
get in immediate exchange for it. We can 
sell coal to our own domestic consumers 
*' below cost,'' because the supply of the 
domestic consumer is the ultimate object 
of organised society. We can sell coal 
to our industrial users at cost, because this 
cost reappears as an increment of Real 
Credit. But in the case of exported Coal, 
save for what we immediately get in 
return for it, it is gone without yielding 
either satisfaction of the consumer or Real 
Credit. In general, therefore, it appears 
proper to sell Coal for export at the price 
we can wisely ask for it, all things con- 
sidered. It may be at the prevalent 


competitive price in the world-market, 
though that would usually be bad national 
policy, or it may be less, even very much 
less. The criterion is the value to our- 
selves or the use we can make on the 
exchange. It is conceivable that our own 
use of coal might be so skilful that nothing 
we could exchange for it would be worth 
exporting it for. Our Real Credit might, 
perhaps, be best increased by consuming 
all our coal at home. 

II. (6) The Government shall reimburse to 
the Colliery owners the difference between 
their total Cost incurred and their total Price 
received, by means of Treasury Notes, such 
notes being debited, as now, to the National 
Credit Account. 

It is clear that the Colliery owners must 
recover their costs (including^ as per 
Clause II. I, dividends, etc. — that is to say, 
their inducements to employ their Capital) ; 
it is also clear that, under the operation of 
the ratio of Price to Cost in the use of 
domestic coal, all these costs will not be 
recovered in the total selling-price. Their 
account so far with the nation stands thus : 
Cost incurred equals the estimate as 


indicated in II. i. Price received equals 
[a) a fraction (J) of the cost of the domestic 
coal produced and delivered, plus {b) Cost 
Price with percentage on industrial coal 
produced and sold ; plus {c) market price of 
coal exported. Their income, in fact, is 
derived from three sources: the domestic 
consumer, the industrial consumer, and the 
foreign market ; and it is the sum of these 
prices that has to be set off against the 
total Costs incurred. In general, we must 
suppose, the yield in Price will be less than 
the Cost incurred; in other words, the 
Colliery owners will, so far, appear to be 
out of pocket on the whole transaction. 
The Clause proposes to make the difference 
up to them by a Credit (either in the form 
of Treasury notes or credit convertible 
into currency) out of the National Credit 
Account. What, in fact, they do not re- 
cover of their total Costs in Price will be 
reimbursed to them by a draft on the 
National Credit Account, represented at 
present by the Treasury. 

The principles underlying the proposal 

are probably clear by now; but two minor 

objections may arise. It may be said that 

the Treasury draft herein proposed neces- 



sarily involves a large inflation of credit; 
and, secondly, it will possibly be urged that 
such a Treasury draft is no more than a 
State subsidy — in short, a benevolent al- 
lowance at the expense of the taxpayer 
to the users of domestic coal. Neither 
objection, however, is valid. The former 
is disposed of by two considerations: 
first, that every penny of the Cost incurred 
has already been disbursed by the Colliery 
directorate — in other words, that no in- 
flation of credit is involved, since already 
the credit advanced has been ''spent"; 
and secondly, that even if an inflation of 
credit should appear to occur, the only 
evil of an inflated currency — namely, a 
rise in prices — has already been provided 
against by means of the ratio in Clause II. 3. 
There is no harm in an abundance of money 
provided that prices are not allowed to 
rise; on the contrary, an abundance of 
money, together with cheap goods, is what 
we all want. Hitherto, however, the more 
money in currency, the dearer goods have 
become ; with the natural consequence that 
people have come to regard an ''in- 
flation of credit,'* or the increase of pur- 
chasing-power, with just suspicion. What 


'' inflation of credit " may be said to be 
involved in the Scheme cannot possibly 
affect Prices, except by reducing them; 
since Prices, under the Scheme, are fixed 
not by the relation of Money to Goods, but 
by the relation of credit consumed to credit 
produced. Instead of being a function of 
Money, Price would be a function of Pro- 
duction. The more the Production in re- 
lation to the Consumption the lower the 
Price, quite regardless of the amount of 
money in currency. 

The objection that the Treasury draft 
suggested in the present Clause is a State- 
dole at the expense of the taxpayer can 
easily be disposed of. Real Credit, as we 
have said, is a communal creation, the 
proper financial representative of which, 
in its totality, is the National Credit 
Account of the Treasury. The Cost in- 
curred in the production of coal is, there- 
fore, incurred on account of the National 
Credit; and it represents a debt owed to 
the industry by the community at large. 
Only part of the coal produced, however, 
is consumed, as we say, unproductively — 
that is, domestically as an ultimate pro- 
duct (always remembering that this ulti- 


mate consumption, nevertheless, is the sole 
aim of production and National Credit 
generally) ; while the other part is consumed 
productively — that is, it contributes an 
asset to the National Credit. Setting out 
the accounts as they stand in this con- 
nection, we see that the community owes 
to the Mining Industry the Costs incurred 
in the production of coal against which is 
set the value of the coal to the community. 
Not only, therefore, does the community 
owe this sum to the industry, but it has 
the wherewithal to pay it; and the where- 
withal consists, in the first place, of the 
price actually paid for the coal, and, in the 
second place, '6fl:lTe~enIianced Real Credit 
produced by means of Coal. The com- 
munity is thus not taxed to make up the 
difference between Cost and Price, since 
that difference already exists in the form 
of the enhanced Real Credit resulting from 
the production of Coal. The community, 
through the National Credit Account, simply 
pays over to the Mining Industry the credit 
balance already created. In a word, it 
gives Financial Credit in recognition of 
Real Credit produced. The difference be- 
tween such a draft of recognition and a 


State-dole paid out of taxes is obvious. 
A State-dole is a transfer of purchasing- 
power from one set of persons to another 
set, without regard to the creation of 
credit. The Treasury draft suggested in 
the Clause is derived from the source to 
which it is returned. It does not tax one 
set of citizens in order to transfer their 
purchasing-power to another set of citizens ; 
no taxation, in fact, is involved in it at all. 
The National Credit Account, through the 
instrument of the Treasury, recognises 
the fact that Real Credit has been produced 
by the Mining Industry, and, after paying 
for the coal consumed by means of price, 
gives Financial Credit for the surplus 
Real Credit, and thus discharges its total 

It has not been the purpose of the fore- 
going commentary to defend the Scheme 
against criticism, good, bad, or indifferent, 
but to explain its general meaning in 
order that its critics (if there are any) 
may be in no doubt of what the Scheme 

One further note in conclusion. A com- 


plete understanding of the principles under- 
lying the Scheme or even a complete under- 
standing of the construction of the Scheme 
itself is by no means necessary to its 
efficient operation. How many of those 
who operate the enormous complexity of 
modern machinery completely understand 
the Science of Mechanics or the Principles 
of Engineering ? How many bankers, 
daily engaged in finance, completely under- 
stand either economics in general or the 
principles of Real and Financial Credit ? 
What is needed on the one hand is a 
sufficient number of people to understand 
the Scheme and to put it into operation; 
and, on the other hand, the approval by 
the community at large of its results in 
practice. The results are certain if the 
Scheme be once adopted. But so far, 
no Executive of any Trade Union, Em- 
ployers' Association, or Government depart- 
ment has sufficiently considered the Scheme 
to pass a judgment on its merits. Sooner 
or later, however, the time will come when 
such a Scheme will be all that stands 
between Chaos and Order in industry. 
For it is impossible that the present 
system should continue, and it is no less 



incredible that any of the ordinary 
SociaHst proposals can be realised without 
a " revolution '' that would itself defeat 
their avowed object. Our desire is to 
carry on; and to carry forward while still 
carrying on. 



Credit -power and .D?